Nestle defies the odds, grows profit by 67%

First half year (H1) 2017 results for a slew of companies listed on the Nigerian Stock Exchange (NSE) under the Food and Beverages category have continued to gradually underscore the resurgence of the Nigerian economy. Nestle Nigeria Plc, the country’s largest composite food and beverages behemoth, for example posted half year earnings after tax growth of a stunning 233.3 per cent rising from a disappointing N535.8 million in June 2016 to N16.5 billion at the end of half year 2017.  The company’s earnings leap dwarfed the sleepy 0.55 per cent growth in gross domestic product (GDP) over the second quarter of the year and the …per cent growth year-on-year. Admittedly Nestlé’s staggering growth is exaggerated by the low earning base of the previous year.

The company saw turnover grow by 52 per cent in H1:2017 having recorded N121.9 billion in revenue when compared to N80.4 billion earned in H1:2016

Gross profit stood at N48 billion, compared to N32 billion in 2016. Results from operating activities improved from N14 billion in 2016 to N26 billion.

Speaking on the financial performance of the company for the period, Mauricio Alarcon, Managing Director /Chief Executive Officer of Nestlé Nigeria said, “We are particularly pleased with the growth which is an affirmation of the loyalty and trust of our consumers in our brands. The result is also due to the hard work of our people, and our distribution network.’

Alarcon noted that the board and management of the company remained confident that going forward the company would be able to maintain a steady keel for its businesses according to him, “the Board and the management remain confident that our strategic roadmap will continue to leverage on the potential of the business and the Company will further increase investments behind brand and route-to-market activities while proactively managing input cost pressures.”

Analysts have fingered the easing of forex given the Central Bank of Nigeria (CBN) strategic move with ‘Investors and Exporters FX Window’ as helping companies wriggle from under their earlier difficulties. Nestles efforts at more intensive backward integration has helped it source a substantial part of its raw materials locally.

Net loss to foreign exchange dropped by 61 per cent to N5.1 billion in half year 2017 from N13.133 billion in 2016.

The company suffered a major setback last year as profit after tax slipped by a numbing 67 per cent raising the hackles of shareholders who were worried about the company’s performance and their equity investments as the company’s price tumbled severely.

A critical observation of the company’s performance revealed that profit dropped to N7.924bn from N23.73bn recorded in 2015.

Its dividend declared for the period also dropped by 31 per cent to N15.06bn from N21.79bn posted in 2015.

Its basic earnings per share slumped from N29.95 in 2015 to N10.00 in 2016, representing a decline of 67 per cent.  The year 2016 was a rough period for business and firms which reeled under the weight of foreign exchange volatility and other macro-economic challenges including deep recession among others. Net loss to foreign exchange however ballooned from N1.758billion in 2015 to N16.286 billion.

However, the consumer goods company recorded a growth in revenue to N181.910bn from N151.271bn.

Analysts have fingered the easing of forex given the Central Bank of Nigeria (CBN) strategic move with ‘Investors and Exporters FX Window’ as helping companies survive the harsh period. The company’s more serious involvement in backward integration which has helped source substantial part of its raw materials locally. Some of them have hinged the progress of Nestle Nigeria to the general improvement in the economy which has just emerged from recession. The effect of that is the significant growth, according to statistics, of Agriculture, Oil and gas, manufacturing, trade among others. Inflation rate is also backing off.

Managing Director/ Chief Executive of Crane Securities limited, Mr. Mike Ezeh, adduced many reasons why Nestle Nigeria remains a premium stock. Ezeh points out that many investors are attracted to Nestle Nigeria because it is the highest income earning stock on the local bourse. He explained that those who are investing for income channel their investment into Nestle which also pays the highest dividend.

”It has made huge impact in the beverage industry by capturing substantial market share”, he notes.

Nestle Nigeria is a blue chip multi product consumer goods giant, a status that has earned the company huge investor interest.

When the company’s stock climbed to N1,088.00 per share in May 30, 2013 many thought that it had attained an all time peak. But its share price has gained 50 per cent year to date to close at N1220.00 per share another unprecedented peak on Thursday September 7, 2017 from N810.00 early in the year and  about N763 higher than Seplat Petroleum , the next highest priced stock in the market.

Before value erosion of stocks in the market in 2008, Nestle was formidable. Its dividends history reveals 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 also 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 N19.00 in 2016.

President, Nigerian shareholders Solidarity Association (NSSA), Chief Timothy Adesiyan, told Business Hallmark that Nestle Nigeria has stood the test of time and has benefitted many shareholders.

Nevertheless, the truth is that Nestle has remained consistent in terms of performance aside from having good fundamentals. These have sustained its high price over the years. But many have fingered the huge percentage stake of its core investors as the major reason the stock may be considered illiquid. Details, however, show 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.

Nestle still remains what investor Warren Buffet would describe as a ‘fat pitch’ opportunity with interesting upward hidden value potential.

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.