Nestle Nigeria Plc published its third quarter unaudited results for the period ended September 30, 2023, revealing a 44.3%  decrease in its standalone profit after tax with an EPS of N8.72 which is lower than N15.65 that was recorded in the same period in 2022.

The EPS decline in the quarter was primarily due to the substantial FX loss of N3.67 billion |against the gain of  N431.81 million in the same period in 2022.  However, the company reported a loss per share of N54.33 against EPS of N50.66 in 2022.

Revenue grew solidly by 21.4%, with the bulk of the weight pulled by the Food, which was up by 29.9% , contributing  65.4% to the revenue segment, while the Beverages  had 8.1% making it  34.6% of revenue segment showed slower growth.

Sequentially, revenue grew marginally by 0.8% quarter to quarter, underpinned by a moderate expansion in the Food segment and a decline in Beverage sales. Analysts believe the group’s topline growth was price-driven as the third quarter  pricing survey indicated that average prices in the Food and Beverage segments saw an uptick of c.10.0% and c.12.0%, respectively.

Gross margin expanded significantly by 579bps to 39.2% in the period under review, driven by solid revenue performance. As a result, both EBITDA which was 604bps and EBIT that was 600bps  margins also expanded to 25.1% and 22.8%, respectively, despite a 19.9% increase in operating expenses, marketing and distribution expenses that was up by 23.6%.

Further down, net finance cost increased significantly by 352.7% in the quarter, owing to the substantial finance costs of 792.2% in the period. The higher finance costs stemmed from the increase in interest expenses on financial liabilities of 495.2%  and net foreign exchange loss of  N3.67 billion against gain of N431.81 million in the third quarter of 2022, reflecting the impact of the naira devaluation.

Overall, profit before tax declined by 14.9% to N12.46 billion in the period following a tax expense of N5.55 billion, profit after tax declined to N6.91 billion in the third quarter of 2023.

Although revenue growth remained robust and operating margins improved substantially in the period, market watchers remain concerned about the effects of FX challenges on the company’s earnings.

Nevertheless, they see scope for sustained revenue growth over the rest of the year, given NESTLE’s strong brand equity and commitment to product innovation amid stiff competition from unlisted cheaper brands.