Nestlé Nigeria Plc maintained stable growth in sales revenue across quarters to N446.8 billion at the end of the 2022 full-year operations.
This is an increase of 27 percent in turnover in the year – the strongest revenue growth in years as we expected in our full-year earnings outlook for the company.
However, the loss of profit margin undermined profit delivery in the final quarter, leading to the lowest quarterly profit contribution in the year. The final quarter contributed N8.8 billion to the bottom line compared to N18 billion in the first quarter, N9.8 billion in the second, and N12.4 billion in the third.
The numbers sum up to the closing profit of roughly N49 billion the company has posted for the 2022 full year.
The full-year audited financial report of the food and beverages company shows that it sustained a loss of profit margin through the year from 16.3 percent in the first quarter to 12.5 percent at half year and from 12 percent at the end of the third quarter to 10.9 percent at full year.
The final quarter recorded the lowest profit margin of 7.9 percent, which explains the profit delivery weakness in the quarter.
Declining profit margin against stable growth in sales revenue speaks loudly of cost increases consuming the earnings.
Two major expense lines of the company were the culprits that consumed much of the gains in revenue and prevented profit from growing as rapidly as turnover.
The first is the cost of sales which rose by over 32 percent to N291 billion compared to the 27 percent improvement in sales revenue. This represents an increase of over N71 billion in cost of sales, which claimed a good part of the N95 billion growth in sales revenue.
The incursion of input cost on sales revenue limited the improvement in gross profit to 18 percent to stand at less than N156 billion.
The second expense line that weakened profit growth is the cost of finance, which grew well ahead of sales revenue at 70 percent to N20.5 billion.
The increase in finance expenses reflects both a major expansion of the company’s borrowings and the hike in interest rates during the year. Nestlé’s interest-bearing debts expanded from less than N77 billion in 2021 to over N155 billion at the end of 2022.
A major increase of 140 percent in finance income in the year to N4.8 billion helped to moderate the increase in finance expenses.
Despite that, net finance cost still grew rapidly at 56 percent to N15.7 billion at the end of the year.
Other expense lines slowed down relative to sales revenue, which helped to dilute the impact of the two major rising costs on the bottom line. These include marketing and distribution expenses that grew by 19 percent to N57 billion and administrative costs that closed flat at N11.5 billion.
With the cost saving from marketing and administrative expenses, operating profit grew by 20 percent to N86.8 billion – ahead of the 18 percent increase in gross profit.
The strong growth in net finance cost however lowered the margin of improvement in pre-tax profit to 14.9 percent to N71 billion.
Further cost saving from tax expenses propped up after-tax profit to an increase of 22 percent to close at N48.96 billion.
Nestlé raised earnings per share from N50.51 in 2021 to N61.77 per share at the end of the 2022 operations.
The company has announced a final cash dividend of N36.50 per share, topping up an interim cash dividend of N25 per share. Inside Business
