Nestlé Lanka September profit flat amid escalating costs, market challenges

Nestlé Lanka PLC, the local unit of the Switzerland-based larges t food company of the world, saw its net profit for the quarter ended September 30, 2016 (3Q16) remaining virtually flat at Rs.1.07 billion or Rs.19.97 a share amid slower growth in top line and escalating costs, the interim results filed with the stock exchange showed

The revenue grew only 3.4 percent year-onyear (YoY) to Rs.8.83 billion demonstrating some challenging market conditions faced by the multinational. The cost of sales edged up 1.9 percent YoY to Rs.5.28 billion, leaving with a gross profit of Rs.3.55 billion, up 5.7 percent from a year ago. “The company faced stiff cost challenges and volatile market conditions, the impact of which was minimized through cost optimization measures and consumer-led initiatives providing more value,” Nestlé Lanka said in a statement. The modest results of its Sri Lankan unit came at a time when Nestle SA’s global sales forecasted a slowest full-year sales growth of about 3.5 percent in 2016 in more than a decade as worldwide food companies struggle against consumer resistance to price increases. In recent times, global food companies have found that higher prices had led to weaker consumer demand on both developed and emerging markets. As a result, Nestle SA decided to follow a strategy of higher volume than higher prices. However, during the period Nestle Lanka PLC invested little over Rs.500 million in new state-of-the-art milk processing and packing facility at its factory in Pannala. Nestle procures most of its fresh milk from the local milk farmer with only a few milk powder varieties being imported. Meanwhile, the company for the nine months ended September 30, 2016, posted a net profit of Rs.3.54 billion, up 1.6 percent YoY. The nine months’ revenue grew 6.1 percent YoY to Rs.27.8 billion while the cost of sales rose 4.4 percent YoY to Rs.16.99 billion. The gross profit was Rs.10.84 billion, up 8.7 percent from a year ago. Switzerland-based parent, Nestlé SA, holds a 90.82 percent stake in Nestle Lanka.