Tax Expense Cut Props Up Nestlé’s Profit To N12b In Q3

0 930

Sustained cost increases ahead of incomes led to declines in Nestle Nigeria’s operating results and pre-tax profit in the third quarter but a slash of 65 percent in tax expenses enabled the company to keep the bottom line slightly improved at N12.4 billion in the third quarter. That tops up the company’s nine-month profit figure to N40 billion.

 

The company’s third quarter financial report for the period ended September 2022 shows that key expense lines swelled well ahead of sales revenue and weakened margins during the period.

 

Cost increases were led by net finance cost that jumped more than two and half times quarter-on-quarter to more than N4 billion for the third quarter. This is followed by input cost that rose by 33.7 percent in the quarter to roughly N74 billion.

 

Marketing and distribution expenses for the quarter also grew by 25 per cent to N15 billion compared to 23 per cent increase in sales revenue to N111 billion for the quarter.

 

 

The stronger growth in input cost than sales limited the improvement in gross profit to 6 per cent to N37 billion for the quarter. The rise in marketing and distribution expenses caused a drop of 5.6 per cent in operating profit for the third quarter to N18.7 billion.

 

 

The biggest blow came from net finance expenses that advanced by 150 per cent quarter-on-quarter to N4 billion, which resulted in a drop of 19.6 per cent in pre-tax profit to N14.6 billion for the third quarter.

 

 

Management however found an escape route in a 64.7 per cent cut in tax expenses to N2.2 billion for the quarter to pull back to an after tax profit of N12.4 billion.

 

The company’s nine-month position shows a stable growth in sales revenue across quarters, amounting to N333.5 billion for the period. This is a year-on-year growth of almost 27.5 per cent, slowing down however from 30 per cent growth in turnover at half year.

 

A stronger growth in sales is expected in the final quarter, which still maintains an impressive full year outlook for the strongest sales revenue improvement for Nestle Nigeria in many years.

 

Cost of sales for the nine months stood at over N216 billion, which is an increase of almost 35 per cent year-on-year. Gross profit improved by 15.8 per cent year-on-year to N117 billion at the end of September, down from about 21 per cent at half year.

 

Marketing/distribution and administrative expenses grew by 21.8 per cent to N43.4 billion, which was partly compensated by a decline of 5.5 per cent in administrative expenses to N9 billion at the end of the third quarter.

 

The result is an operating profit of N64.9 billion, which is an increase of 15.6 per cent year-on-year, a significant slowdown from 27 per cent increase in operating results at half year.

 

Finance cost amounted to over N9 billion at the end of the third quarter, which is an increase of 58 per cent year-on-year, which is a welcome slowdown from 105 per cent jump at half year.

 

 

However, net finance cost reversed from a drop of 17 per cent at half year to an increase of 43 per cent year-on-year to N6.5 billion at the end of September 2022. The company’s borrowings have climbed further from N93 billion at half-year to about N105 billion at the end of September 2022.

 

 

Nestle Nigeria closed the third quarter operations with an after tax profit of a little over N40 billion, which is an improvement of 19.6 per cent year-on-year, slowing down from 27.7 per cent at half year.

 

 

Net profit margin continued a downward move from 16.3 per cent in the first quarter to 12.5 per cent at half year and 12 per cent at the end of the third quarter.

 

Based on an expected better final quarter, the company is still on its way to achieving the first reasonable profit improvement in three years. With the closing profit at the end of the third quarter, it has already matched its closing profit of N40 billion in 2021.

 

 

Earnings per share amounted to N50.66 at the end of September 2022, an improvement from N42.37 per share in the same period last year.