Nestlé Lanka 2Q net profit surges on exchange gains; sales flat

Nestlé Lanka PLC reported marginal growth in revenues in the three months ended June 2023, and the gross margins took a dent as the local unit of the global food giant had to roll back the prices to appeal to the consumers whose disposable incomes got eroded due surge in inflation and higher taxes.

However, the net profit soared as the company benefited from the appreciation of the rupee against the dollar in the period under consideration as it carries dollar denominated debt from its parent company, NestléS.A. 
The maker of malted powdered products like Milo and Nestomalt and instant Maggi noodles reported revenues of Rs.18.49 billion in the April – June period, up just 2.6 percent from the same period in 2022.

The company said the volumes were lower in the quarter and it lowered prices considering the sharply impaired ability of the people to spend on items manufactured by the company. 
The company reported an operating profit of Rs.3.16 billion for the quarter, down 34.8 percent from the same period in 2022. 

Marketing, sales and distribution expenses rose from Rs.1.63 billion to Rs.2.61 billion between the two periods reflecting increased spending on promotion and the higher energy and other costs in the economy.   
However, the company reported a net profit of Rs.2.37 billion or Rs.44.7 a share in its fiscal second quarter ended in June 2023, compared to earnings of Rs.1.13 billion or Rs.21.03 a share a year ago. 

The sharp increase in the bottom line was possible from the modest appreciation in the rupee this year compared to the sharp depreciation of the rupee last year which caused massive translation losses on its dollar denominated intra-group loans. 
As a result, the company successfully turned last year’s net finance cost of Rs. 3.51 billion into a net finance income of Rs. 185.4 million.

Due to the sharp volatility in the performance caused by the swings in the currency, the company had decided to partly retire up to Rs.5.5 billion equivalent dollar denominated intra-group loans in the next twelve months. 
Meanwhile, higher corporate income tax partly offset the benefit that came from the rupee appreciation as it applied the standard income tax rate of 30 percent on all operations of the company, instead of subsidised tax rates available on manufacturing and exports and the lower standard rate of 24 percent on other operations. 

The company booked a tax charge of Rs.976.38 million for the quarter compared to Rs.206.92 million a year ago. 
The shareholders on June 30 approved a resolution to delist the company from the Colombo Stock Exchange and its awaiting the formal approval from the Securities and Exchange Commission to complete the process. 
Switzerland based Nestlé S.A has 91.95 percent stake in Nestlé Lanka PLC as of June 30, 2023.