Nestle released audited results show 1.3% y/y decline in Q4-21 standalone PAT
Nestle Nigeria Plc released its 2021FY audited results yesterday, reporting an 11.3% y/y decline in Q4-21 standalone PAT with an EPS of NGN8.14 (Q4-20: NGN9.18), bringing the 2021FY EPS to NGN50.51 (+2.1% y/y; 2020FY: NGN49.47). The EPS decline in Q4-21 was driven mainly by cost pressures (+32.2% y/y) and higher net finance costs (+94.4% y/y). NESTLE’s board has proposed a final dividend of NGN25.50/s, bringing the 2021FY total dividend to NGN50.50/s (2020FY: NGN60.50/s), implying a 100.0% dividend payout ratio and yield of 3.5% based on the last closing price of NGN1435.00/s.
Revenue grew markedly by 21.4% y/y in Q4-21 (2021FY: +22.6% y/y), supported by growth across the business’ Food (+11.6% y/y | 59.8% of revenue) and Beverages (+39.5% y/y | 40.2% of revenue) lines. We believe the c.5.0% increase in Maggi retail prices drove the growth in the Food segment, while higher sale volumes drove the increase in the Beverages segment, with product prices in this segment broadly unchanged. On a q/q basis, revenue grew marginally by 0.1%, following a slow expansion in the Food (+1.4% q/q) segment and a decline in beverage (-1.8% y/y) sales in Q4-21.
Gross margin (-540bps) declined to 33.9% in Q4-21 (2021FY: -405bps to 37.5%), as cost of sales (+32.2% y/y) grew faster than revenue. Specifically, the higher costs reflect the effects of inflationary pressures on the cost of raw materials. For clarity, NESTLE sources c.80% of its raw materials in Nigeria.
Thus, EBITDA (-181bps) and EBIT (-158bps) margins declined to 20.0% and 17.6% in the quarter, respectively, amid a 1.7% decline in operating expenses. However, for 2021FY, EBITDA (+266bps) and EBIT (+297bps) margins increased to 22.8% and 20.5%.
Further down, net finance costs increased by 94.4% y/y, following a 126.4% y/y increase in finance costs. The higher finance costs result from net foreign exchange losses and an increase in interest expense on financial liabilities. On the latter, we note that the company tapped an intercompany loan facility (NGN74.86 billion) from Nestle SA, which increased its total borrowings by 91.1% to NGN76.86 billion as of 2021FY (2020: NGN40.21 billion).
Overall, PBT declined by 9.5% y/y to NGN10.29 billion in Q4-21 (2021FY: +2.0% y/y to NGN61.88 billion). Following a tax expense of NGN3.84 billion, profit after tax (-11.3% y/y) printed NGN6.45 billion in Q4-21 (+2.1% y/y to 2021FY: NGN40.04 billion).
Analysts say although revenue growth was positive, we remain concerned about the effects of inflationary pressures and FX inadequacies on NESTLE’s earnings. Nonetheless, we still see scope for sustainable growth in revenue over the medium term, given the gradual pick up of the food segment, amid stiff competition from unlisted brands. Our estimates are under review.
