‘Tough conditions’: Nestle Malaysia predicts continued challenges as economic woes hit Q3 profits

31-Oct-2022 - Last updated on 31-Oct-2022 at 04:03 GMT

Nestle Malaysia saw its profits for the third quarter take a hit year-on-year due to rising commodity costs and poor exchange rates. ©Getty Images

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Nestle Malaysia saw its profits for the third quarter take a hit year-on-year due to rising commodity costs and poor exchange rates, with firm predicting that this challenging situation will not abate any time soon.

The firm recently announced its Q3FY2022 financial results alongside its nine-month performance for FY2022.

The nine-month performance results were positive, highlighting a 17.5% year-on-year increase in sales to RM5.02bn (US$1.06bn) in 2022 from RM4.27bn (US$904.2mn) in 2021, a 13.7% growth in domestic sales and 33.8% growth in export sales, and a 11.8% growth in Profit Before Tax (PBT) to RM676.1mn (US$143.2mn) as well as 6.5% to RM487.5mn (US$103.2mn) in Profit After Tax (PAT).

For the Q3 results, turnover was also positive with a 17% year-on-year increase to RM1.68bn (US$498.5mn) compared to Q3 2021 – but a closer look at profits for this quarter showed that the firm took a hit in both PBT and PAT, recording an (estimated) 27.9% drop from RM207.6mn (US$61.6mn) to RM149.6mn (US$44.4mn) in PBT and an (estimated) 24.4% drop from RM148.9mn (US$44.2mn) to RM112.6mn (US$23.8mn) in PAT.

Nestle Malaysia has attributed these drops in profit to impacts from the ongoing current economic situation.

“We continue to contend with tough market conditions defined by high commodity prices and energy costs, in a challenging and volatile global environment,” Nestle Malaysia CEO Juan Aranols said in a formal statement.

“Adding to this, the Malaysian Ringgit has depreciated to its weakest point against the USD in many years, further compounding the impact from imported commodities, even if this has been partially softened by our hedging policy.

Apart from the higher commodity prices and unfavourable exchange rates, the quarterly impacts on PAT by of Malaysia’s Cukai Makmur (Prosperity Tax), a one-off prosperity tax collected as a 33% corporate income tax from businesses other than small and medium enterprises that exceed RM100mn in chargeable income for FY2022, as a factor for the decreased profits.

Focusing on the growth in revenue despite these conditions, Aranols attributed this to rising consumer interest in many of Nestle Malaysia’s new innovations geared towards health and nutrition.

“With the progressive return to pre-pandemic normalcy, we have been leveraging all opportunities to increase the reach of our core products [and] lead in product innovation - This included further expansion of our plant-based meal solutions with the HARVEST GOURMET Plant-Based Nuggets launch,” he said.

“[There have also been] other innovations such as our NESTLÉ OMEGA PLUS Dark Chocolate Milk Powder; our healthier choice MAGGI Nutri-licious Noodles range; the introduction of our premium chocolate block range under NESTLÉ LES RECETTES DE L'ATELIER Chocolate and KITKAT Bar Dark with Southern Australian Oranges, to name a few.

“We also continue to support all these initiatives with effective marketing support with increased focus on digital.”

Forging ahead

Despite the current challenges, Nestle Malaysia remains confident that it will still be able to achieve significant growth this year, although caution will remain the name of the game.

“As we move ahead into the final quarter of the year, [Nestle Malaysia] remains in a resilient position to deliver a year of solid growth,” said Aranols.

“[Despite the challenging backdrop, we will remain focused on [meeting] the expectations of taste and quality of all Malaysians.

“We will also continue to enhance operational efficiencies to moderate the impact of external cost headwinds [whilst also continuing to] drive our ESG agenda with our comprehensive set of green initiatives.”