Four things to note from Nestle’s latest financials

Nestle Nigeria, a global food and beverage powerhouse, recently concluded the first half of 2023 with mixed results as Nigeria’s economic situation takes a toll on its books.

Despite achieving a 17.67 percent increase in revenue during the first half of the year, amounting to N261.7 billion, Nestle’s results for this period have been influenced by ongoing challenges, including inflation and the recent unification of the foreign exchange market among others.

First half-year loss in six years

On the backdrop of a significant increase in foreign exchange loss, Nestle reported a loss of N27.75 billion in its profit after tax in the first half of 2023 from a profit of N27.75 billion recorded in the same period of 2022, making it the first loss in five years.

Foreign exchange loss spiked up by 5,738.2 percent to N123.77 billion recorded in the first half of 2023 from N2.12 billion recorded in the same period of 2022.
This shift can be attributed to the Nigerian central bank’s decision to unify the nation’s multiple exchange rates, leading to the floating of the naira at the Investors’ and Exporters’ Window of the foreign exchange market.

Inflation & raw material sourcing drive up input cost

Amidst the backdrop of sourcing raw materials locally and grappling with escalating input costs, Nestle’s financial landscape has further been impacted given the continuous rise in inflation.

Despite sourcing 80 percent of its raw materials locally in 2019, to mitigate sales costs and foreign exchange exposure, the cost of sales has continued to rise according to BusinessDay findings.

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In the first half of 2023, the cost of sales reached N154.4 billion, up from N142.2 billion in the same period of 2022.
Input cost gulped 59 percent of its revenue in the first half of 2023 to N154.4 billion from N142.2 billion recorded in 2022.The cost of goods sold refers to the price of manufacturing products or buying inventory that was sold during the current year.

Rising cash and cash equivalent

As of June 30, Nestle’s cash and cash equivalents stood at N117.5 billion, an increase from N88.14 billion in the same period of 2022.

This implies the firm had sufficient funds to honour both short- and long-term obligations to creditors.
Notably, net cash flows from operating activities reported a loss of N12.15 billion in the first half of 2022 to a profit of N6.48 billion in the corresponding period of 2023.

Net cash flows used in investing activities recorded losses of N10.64 billion during the first half of 2023 from N3.23 billion in the same period of 2022.

This is attributed to a decrease in finance income and increased investment in property, plant, equipment, and right-of-use assets.

Net cash flows provided by financing activities, reporting an increase in profit to N4.9 billion during the reviewed period compared to N3.09 billion in the same period of 2022.