In the first quarter (Q1), Nestle Nigeria Plc came under increased pressure from mounting debts and interest costs, which caused the company’s after-tax profit to decline from nearly N18 billion in the same period last year to N16.2 billion for the quarter.
According to Nestlé’s interim financial report for the first quarter of 2023, which concluded in March, interest-bearing loans increased steadily from less than N77 billion in 2021 to more than N155 billion at the end of 2022 and then to almost N173 billion at the conclusion of the quarter.
Finance costs increased due to rising debt by 125.9% quarter over quarter to N5.3 billion in Q1, while finance income decreased by 58.3% to N1.6 billion over the same period.
A direct cause of the company’s loss of profit in the quarter was the adverse changes in finance cost and income, which caused a negative shift from net finance income of N1.4 billion to net finance cost of N3.7 billion throughout the period.
The cost of financing was one of the two significant cost increases that reduced the company’s profit margin and hindered profit growth in the previous year, increasing by 70% to N20.5 billion. The financial income situation has changed from one of strong growth to a significant dip in Q1 of this year, which has put additional pressure on the bottom line.
The food and beverage company saw its profit margin decline from 16.3 percent in the first quarter to 10.9 percent for the entire year in 2022. The profit margin decreased further during the review period, falling from 16.3 percent to 12.6 percent, under increased pressure from finance charges this year thus far.
Marketing and distribution costs, which increased by more than twice as much as sales revenue, or 35.9 percent, to N19.3 billion at the end of the quarter, put pressure on the company’s earnings in Q1.
At the end of Q1, sales revenue increased by 16.1% on a quarterly basis, slowing from a remarkable increase of 27.0% for the entire year of 2022.
In the first quarter, the company’s cost of sales behaved more moderately, shifting from consuming sales revenue last year to saving costs this year. Cost of sales increased by 13.9 percent in Q1 to N76.3 billion, accounting for a lower share of turnover at 59.6 percent than it did in the same period of 2022 (60.8 percent).
The decrease in input costs boosted gross profit, which increased at a faster rate than sales (19.5%) to reach N51.6 billion by the end of March 2023. This indicates an increase in gross profit of N8.4 billion, however a large portion of that was eaten up by costs associated with marketing and distribution.
The intrusion reduced operating profit, which ended the quarter at N28.6 billion after increasing by 8.5 percent, or N2.2 billion.
At the conclusion of the first quarter, pre-tax profit was N24.9 billion, down from N27.8 billion in the same time last year due to the substantial increase in net finance costs, which devoured more operating profit growth than any other factor.
As receivables increased and payables decreased, the company is experiencing increasing cash flow pressure. Net cash used in operating activities increased from N10 billion in Q1 of last year to N24.9 billion in Q1 of the current financial year. Therefore, new loans had to be obtained in order to fund the business’ operations during that time.
