Nestle Nigeria Plc (NESTLE) published its Q2-22 unaudited result last week Friday, reporting standalone EPS of NGN12.33 (NGN11.77); bringing H1-22 EPS to NGN35.01 (H1-21: NGN27.42). The EPS outturn was supported by the sturdy top-line expansion (+33.3% y/y) in the period. We highlight that the EPS print for H1-22 tracked faster than our estimate (NGN33.44) by 4.7%, with the variance stemming from a better-than-expected revenue print.
Q2-22 revenue grew by 33.3% y/y, driven by substantial growth across the Food (+35.9% y/y | 59.1% of revenue) and Beverages (+29.7% y/y | 40.9% of revenue) business segments. We believe price increases implemented across the company’s product portfolio drove strong growth in these segments. Sequentially, revenue grew marginally by 1.8% q/q, underpinned by the slower pace of growth from the Food (+0.3% q/q) and Beverages (+4.1% q/q) segments relative to Q1-22.
Gross profit margin shrank by 471bps y/y to 32.9% in Q2-22, following faster growth in the cost of sales (+43.4% y/y) relative to revenue (33.3% y/y). The higher cost is reflective of the effects of inflationary pressures. Consequently, EBITDA (-178bps) and EBIT (-140bps) margins both declined to 19.7% and 17.6% respectively, with further pressures emanating from operating expenses (+9.6% y/y) – marketing and distribution expenses (+20.7% y/y).
NESTLE’s net finance cost grew by 137.5% y/y in the quarter, owing to a 134.6% y/y increase in finance cost amid a 119.5% y/y increase in finance income. As of HY-22, interest expense on financial liabilities and net foreign exchange loss increased to NGN4.84 billion (HY-21: NGN3.36 billion) and NGN2.13 billion (HY-21: NGN35.51 million), respectively.
Overall, pre-tax profit grew by 10.5% y/y to NGN15.89 billion in Q2-22. However, a higher effective tax of 38.5% in the quarter compared to 35.1% in Q2-21 led to slower growth in profit after tax to NGN9.77 billion (+4.7% y/y).
Comment: Although NESTLE’s earnings sustained positive growth in Q2-22, we highlight that the company’s performance reflects our concerns (click here for our Consumer Goods sector update) on diminishing margins, given the current inflationary pressure. For the rest of the year, we maintain our expectation of resilient earnings driven by NESTLE’s brand equity and product innovation amid stiff competition from unlisted cheaper brands. Our estimates are under review.
