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Published On: Mon, Nov 13th, 2017

Nestle sparkles in Q3 results

By OKEY ONYENWEAKU

As the packaged Consumer goods (PCG) sector struggles to stay ahead of falling consumer demand, companies such as Nestle Nigeria plc are bucking the trend of businesses with shrinking bottom lines. Indeed the multi-product packaged goods producer has seen earnings rise to mind boggling with its pre-tax profit rising by a stunning 526 per cent year on year between third quarter 2016 and the comparable period of 2017. The earnings growth becomes particularly impressive when compared to the 74 per cent drop in year on year third quarter earnings between 2015 and 2016.Nestle has somehow found an elixir to the problem of durable profitability and appears set to dazzle equity holders as its share price skims past N1,290.
The maker of premium food beverage, Milo, saw its revenue rise to N185.242 billion in 2017, up by 43 per cent from N129.482 billion in the comparable period of 2016, while its cost of sale stood at N109.362 billion, compared to N77.546 a year earlier.
Gross profit rose to N75.881 billion, from N51.933 billion, but net finance costs fell 56 per cent to N8.606 billion, from N19.865 billion in 2016.
Profit before tax jumped by 526 per cent from N5.504 billion in 2016 to N34.479 billion, while profit after tax leapt by 4,638 per cent from N485 million to N22.979 billion.
A further of Nestle’s recent quality result was that net forex loss fell by 42 per cent from N19.4billion in 2016 to N11.148billion in 2017, a situation that worked in favour of the company’s bottom line. Personnel expenses rose 7 per cent from N15.8billion in 2016 to N17.057 billion in 2017. The interest income from its bank deposits rose 196 per cent from N2.118billion in third quarter 2016 to N6.281billion in 2017.
This is an unprecedented performance in the life of the company, according to industry analysts.
With stronger earnings the company has announced an interim dividend of N15.00 per share, which was a departure from last year’s situation when the beverage maker shied away from paying interim dividends.
Speaking on the results, the company’s Managing Director, Mr. Mauricio Alarcon, assured stakeholders of the determination of board and management to sustain the positive performance.
He explained that revenue growth was supported by strong consumer and distribution-led activities as well as benefits of pricing effects of last year.
“The growth is an affirmation of the loyalty and trust that our consumers have in our brands despite pressure on disposable income and tough market conditions,” he said.
The company added that net profit for the period has increased substantially due to internal cost savings, increased operating efficiency and a significant reduction in net financing costs.
According to Alacron the company’s board and management, ‘remain committed to unlocking the potential of the business supported by our strategic roadmap. The company will further increase investments behind brands and route-to-market activities while proactively managing input cost pressures,” he added.
The beverage giant had posted a fall in profit after tax of 66 per cent from N23.7billion in 2015 to N7.9 billion in 2016, caused by a revaluation of dollar denominated loans. This challenge was equally attributable to macro-economic conditions in 2016 which were reflected in the poor dividend payout for the year as dividend fell from N21.00 to N10 per share.
However, Nestle posted a turnover of N181.9 billion in the review period compared with N151.3 billion in 2015, an increase of 20 per cent. Its operating profit stood at N38.2 billion in contrast to the N33.7 billion recorded in the preceding year representing a growth of 13 per cent.

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When Nestle Nigeria’s stock rose o N1,088.00 per share in May 30, 2013 many analyst had thought it had reached an all time market peak. But its share price has gained a further 59 per cent year to date to close the recent weekend at N1290.00 per share. This places its share about N795 higher than local oil major, Seplat Petroleum Development Company; the next highest priced stock in the market, trading at N495.00 per share as at Friday last week.
Before the market meltdown in 2008, Nestle was one of Nigeria’s most formidable PCG companies. Its dividends history shows that it paid N1.50 kobo per share in 2001 and N6.50 in 2002. In 2003 investors earned N7.00 per share as dividends. The company also paid dividends of N7.00 in 2004, N7.00 in 2005 and N10.00 in 2007.It paid N11.95 kobo in 2008, N12.55 in 2009, N10.60 in 2010 and N12.55 in 2011, N18.50 in 2012, 18.50 in 2013, N17.50 in 2014, 17.50 in 2015 and N10.00 in 2016.
Market analysts have been impressed with the company’s finacial outlook for the year, particularly in third quarter. Managing Director of Crane Securities, Mr. Mike Ezeh believes that Nestle Nigeria is always recording high turnover which serially improves its profit. According to him, consumers have strongly embraced the company’s products which are seen as household staples.

Despite its achievements, however, the difficult operating environment needs to be watched.
Even though the price of Crude oil has risen, the operating environment is still tough for businesses given general economic contraction. Banks are still not favourably disposed to giving out loans. This, many think, could affect the purchasing power of consumers of not only products of Nestle Nigeria but also other companies. There is a strong local belief that profit margins as well as turnover figures may remain uncertain for some time to come. Analysts point out that when other economic indicators are low; other aspects of economic activity become adversely affected.
Recently, African leaders and other stakeholders have expressed worry about the future of manufacturing in the continent despite the avalanche of human and natural resources available.
Their view was that the traditional industrial pattern which is still holding sway in Africa would continue to keep the continent down if it does not join the fourth industrial revolution which embraces emerging technologies such as mobile connectivity, artificial intelligence, next-generation robotics, and 3D printing, supply chains, etcetera.
In his key note address at the yearly general meeting of Manufacturers Association of Nigeria (MAN) former President of the United Republic of Tanzania, Benjamin William Mkapa, said Nigeria and other African countries will be making a grave mistake if they looked at the development of industries in the world and think that they ought to follow a similar path to that industrial economies have followed, and ignore areas where Africans have comparative advantage.
“As a start, it is important for Nigeria to pause for reflection and assess its own economic history and profile so as to determine its impact on manufacturing sector so far. Generally speaking, the outlook of manufacturing in Nigeria and in Africa is uncertain’’, he said
Nevertheless, Nestle has remained consistent in terms of operating performance. This has justified its price over the last few quarters. A number of analysts have pointed at the large institutional equity of its core investors as the major reason the stock may be considered illiquid. A breakdown, however, shows that Nestle S. A. of Switzerland and Nestle CWA limited, Ghana are the major shareholders of the company, controlling 3.17% and 59.13% of the company respectively. This has left investors with fewer shares of the company.
The company commenced simple trading operations in Nigeria in 1961 and has today grown into a leading food manufacturing and marketing company. Nestle which products include Bouillon Cubes, Maggi Chicken, Cray fish and super onion spices, Nestle Nutrend, Cerelac , Nan –Baby food, Nestle Golden Morn-Cereal, Nestle Nido, Carnation- Milk and Nestle Milo (Chocolate drinks) and Nescafe (Coffee) brand of beverages, was listed on the Nigerian Stock Exchange on April 20,1979.

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