Nestle Nigeria Q1 2017 suffers 38.4% gross margin decline

Nestle Nigeria Plc for the first quarter 2017 recorded growth in sales and profit after tax over a 12 months period and three months period, but the gross margin dropped remarkably on annual and quarterly basis.

The company’s Q1 result for the period ended March 31, released by the Nigerian Stock Exchange (NSE) recently showed that Sales recorded by Nestle grew by 69 per cent y/y to N61.2billion while Profit before Tax (PBT) grew by 64 per cent y/y to N14.3bn.

As the macroeconomic headwinds persists, Nestle Nigeria’s PAT grew by 25 per cent y/y to N8.4billion, while the firm also posted PAT growth of 12 per cent q/q due to a comparatively lower tax rate of 41.5 per cent, compared to 53.6 per cent recorded in Q4 2016.

The result showed that unit volume growth and y/y increase prices contributed to the strong topline growth recorded in the first quarter.

Price increases across all categories, as well as decline in competition from imported products due to foreign exchange (fx) supply constraints, were attributed as the primary drivers to the topline growth delivered by the company in Q1.

The company’s Q1 result further showed that sales in food category were up 92.6 per cent y/y to N40.3bn while sales for the Beverage segment also grew 46 per cent y/y to N21.4billion.

The strong topline growth more than offset the negative impact from a gross margin contraction of -1081bps y/y to 38.4 per cent and a double-digit y/y rise in opex.

Nestle’s net finance income was N1.1billion compared with a net finance charge of –N300m in the corresponding quarter of 2016. A strong finance income of N2.6billion offset an fx-revaluation loss of N1.0billion.

PAT was up 25% y/y to N8.4bn. Overall, Nestle’s Q1 performance is very strong. Sequentially, sales grew by 16.6% q/q. A gross margin contraction of -622bps q/q led to a PBT decline of -11% q/q.