Nestle Nigeria half-year profit fall 94% on high finance cost

Nestle Nigeria Plc on Friday reported a 94% drop in net income to N536m in half-year 2016, down from N8.9bn recorded in the same period a year ago.

However, the maker of Milo, Choco Milo, Nido, Nescafe coffee, among others said that revenue grew 22% to N80bn, up from N66bn recorded in the first-half of 2015.

The company saw a 28% rise in cost of sales to N48bn, up from N37bn in the previous year, resulting in a 14% gross profit margin.

However, the chocolate drink maker saw finance cost skyrocket 361% to N15bn, from N3bn recorded a year earlier.

In an interview on CNBC Africa, the CEO of Nestle Nigeria Dharnesh Gordhon blamed the spike in cost of sales on a host of factors including higher cost of transportation as a result of higher fuel cost, higher cost of raw materials due to inflation and the devaluation of the naira.

http://www.cnbcafrica.com/video/?bctid=5066688952001

Ghordon said that Nestle had dollar denominated loans which were due in the first-half and when the Central Bank of Nigeria let the naira float in June, the naira fell by almost 40% against the dollar causing a spike in finance cost.

In a released statement, the company said:

We are pleased that our revenue increased by 22% in the first half of 2016 despite the tough economic environment. In both the first and second quarters of 2016, our revenue grew by double digits, thereby confirming the great value that our brands provide consumers. The increase in the cost of sales was mainly due to higher material costs resulting from currency devaluation.

Operating Profit for the period has increased by 10% despite pressure on input costs. Net profit has been negatively impacted by the revaluation of the foreign loans due to Naira devaluation.

The Board and Management will continue to implement necessary measures and cost saving initiatives to address the macroeconomic challenges and remain fully committed to the long term potential of the business in Nigeria.

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