Nestle Lanka doubles profits in 3Q amid sharp top line gains

Nestle Lanka PLC, the local operation of the world’s largest food and beverage company, saw its profits surging for the quarter ended on September 30, 2022 (3Q22), amid a sharp growth in top line, as a result of price increases.

For the quarter under review, the company’s revenue grew 87.5 percent to Rs.21.3 billion compared to the corresponding quarter of the previous year while cost of sales rose 89.1 percent to Rs.14.4 billion.

With the escalation in costs, the company sharply increased the prices of its products, including the popular Maggi instant noodles and malted drink Milo.

Sri Lanka is experiencing the worst inflation episode in its history amid an unprecedented economic crisis, with food inflation running nearly at 100 percent. 
For the quarter under review, Nestle Lanka posted earnings of Rs.58.47 per share or Rs.3.1 billion, compared to earnings of Rs.28.21 per share or Rs.1.5 billion reported for the corresponding period of last year. 

The company’s operating profit for the quarter was Rs.3.8 billion, up 106.7 percent year-on-year.

During the quarter, the company saw its net finance expense surging 665.2 percent YoY to Rs.186.2 million amid the currency depreciation.   For the nine-month period, Nestle Lanka reported earnings of Rs.94.85 a share or Rs.5.09 billion, compared to earnings of Rs.76.34 per share or Rs.4.1 billion reported for the corresponding period of the previous year.

“Profit for the year-to-date September is substantially impacted, due to the exchange losses of Rs.5.1 billion (net) of which Rs.4.4 billion relates to unrealised exchange losses on intra group loan,” notes to Nestle Lanka’s interim financial accounts said.   In January this year, Nestle Lanka announced plans to borrow US $ 45 million from Nestle MEA to cater to its foreign exchange requirements for the year, as the country was facing an acute shortage of dollars.  Meanwhile, the company said due to the significant unrealised exchange losses, it has experienced deferred tax assets as at September 30, 2022. The deferred tax impact form net unrealised exchange losses is estimated at Rs.914 million.   Further, the company has estimated a tax liability of Rs.334 million for the fourth quarter that would arise from the Social Security Contribution Levy of 2.5 percent that came into effect from October 1, 2022.   Nestle S.A. holds 91.95 percent of Nestle Lanka.