Hike in VAT, coconut prices and low consumer spend hurt Nestle
View(s):Nestle Lanka’s results were impacted by an increase in Value Added Tax (VAT), sluggish consumer demand and high coconut prices aggravated by the prevailing drought, officials said.
Nestle largely depends on imported raw materials such as skimmed milk powder, cocoa, sugar, palm oil, wheat, etc. The depreciation in the Rupee coupled with price increases of certain raw materials would have resulted in higher import costs in raw materials for Nestle, analysts said.
The company recently initiated an investment of over Rs. 4.5 billion in a new manufacturing facility, to expand production capacity for its popular dairy and coconut based products. “The drought has significantly affected fresh coconut crop, leading to an unprecedented increase in coconut prices,” a company media release said. Nestle is Sri Lanka’s largest private sector collector of fresh milk and one of the world’s largest exporters of coconut milk powder. Its payment to farmers for procuring these raw materials exceeded Rs. 6 billion in 2016 alone. Nestle reported a sales revenue of Rs. 9.4 billion and profit of Rs. 0.9 billion for the first quarter ending 31 March 2017. The company’s profit after tax (PAT) lowered to Rs. 862 million (-32.4 per cent YoY) for the quarter, mainly due to a drop in revenue.
The top line dropped 3.8 per cent YoY to Rs. 9.39 billion in Q1 FY 17 with the fresh imposition of VAT on milk powder.