By OKEY ONYENWEAKU
Anyone who hears that any stock (Company) is paying N45.00 dividend per share would think that investors in that firm have made a kill. It is the case with Nestle Nigeria Plc today as the company had earlier paid an interim dividend of N25.00, which mow bring its total dividend payout for the trading year to N70.00 per share.
Investors, including laymen who happen to own shares in the company are excited. This dividend package is in fact, about the highest in the history of the market in absolute figures where dividends are generally not higher than N16.00 or N20.00 at the most in absolute figures.
However, for Nestle Nigeria Plc to pay N45.00 in a bearish market in a bearish season is no mean feat.
In fact, on the surface of things, N70.00 appears quite high, being arguably the highest in the capital market in a long while. But on percentage terms the yield is just slightly ahead of the average yield of 5 per cent.
A closer observation shows that the N70.00 dividend represents 6.8 per cent yield at the share price of N1, 017.00 per share as at March 4, 2020.
On this score then, many analysts believe that 6.4 per cent yield is very small compared with the 14.2 per cent yield of say, Zenith Bank, even with an apparently less earth-shaking dividend payout of N2.80 at its current price of N19.60 per share.
Nevertheless, Nestle Nigeria is to be applauded for having diligently resisting the smothering effect of the persisting weak macro-economic headwinds and raising its head high despite all odds. Pushing back on the harsh macro-economic environment, the company beat analysts’ expectations in the final year performance for the period ended December 31, 2019 as reflected in the increased revenues that it was able to deliver.
The company posted revenue of N 283.9 billion, which translates to about 6.6 per cent growth over the previous year.
While the manufacturing sector has been losing steam due to high cost of production and lack of raw materials, the food and beverage giant yet scooped profit after tax profits of N45.6billion, representing 6 per cent over the N43.0billion the company had achieved in 2020. In addition to N 25 per share interim dividend already paid, the Board proposed an additional dividend of N 45 per share, making a total dividend of N70 for 2019, a statement from the company said.
Mr. Mauricio Alarcon, Managing Director and CEO of Nestlé Nigeria Plc, said the proposed dividend will be submitted for approval at the company’s Annual General Meeting on June 2, 2020.
“In 2019, we reaffirmed our market leadership by delivering increased profits and dividends to shareholders. We achieved this by responding speedily to consumer preferences, by offering product innovation and improving our distribution channels…Our high-performing team adapted quickly to changing consumer expectations by adopting new ways of delighting our consumers in the market place,” Alarcon said.
Further details show while marketing and distribution cost rose by 5.9 per cent from N43.48 billion, Inventories also rose by 43 per cent from N23.124billion in 2018 to N33.27billion in 2019.
Analysts however believe that the growth of its loans and borrowings which rose by 383 per cent should be controlled before it becomes dangerous for the company.
Still speaking on what the company had done to deliver on its current results, Alarcon stated that the company enhanced its portfolio with new products, including MAGGI Signature seasoning mixes adapted to consumer tastes and cuisine across the country. “CERELAC Junior fortified with iron was also launched to help meet the nutrition needs of pre-school children,’’ he said.
On the 2020 outlook, Alarcon explained that Nestle Nigeria Plc would continue to focus on the innovation and the renovation of products and on rolling out new solutions and services in response to changing consumer needs.
“This will prepare us for the challenges ahead, while we partner with key stakeholders for the growth of the local economy. With society looking more to business to improve social amenities, Nestlé Nigeria will continue to invest in creating shared value by improving livelihoods in the communities closest to our business operations.
“This is in line with our purpose of enhancing quality of life and contributing to a healthier future. We will also drive new initiatives to empower our people to deliver outstanding results for themselves, for the organisation and for society,’’ the Nestle Nigeria Plc’s CEO said.
The results under consideration, analysts believe was achieved due to creative and efficient management of costs during the period under review.
Over the years the manufacturing sector has suffered huge set back emanating from factors such as the power crisis, misappropriation of Funds by government officials, excessive dependence of Nigerians on Imported Goods, lack of finance, classification of manufacturing Industry as a high risk area for bank lending, unbridled globalization, high cost of production and poor infrastructure among other impeding challenges.
But these have not deterred some of the stronger breed like Nestle Nigeria which appears to have proved and mastered the art that it can always run against the tide and still deliver fairly good margins for its investors.
FIVE YEAR PERFORMANCE
Nestle Nigeria, the giant beverages firm has not done badly in the last five years, and this is counting from 2015 to 2019.
Analysis of its performance shows that it grew its revenue by 87.7 per cent from N151.27billion in 2015 to N284.03billion in 2019. Similarly, its profit before tax has grown 142.5 per cent in the last five years from N29.322billion in 2015 to N71.123billion in 2019. This is no mean performance given the harsh macro-economic environment in Nigeria.
While the performance is not too fantastic, Nestle Nigeria and other manufacturing firms have been plagued by macro-economic factors: a higher inflation rate at 12.3 percent as of December 2019, the insurgency in the North – which has denied it market access – and a higher borrowing cost, which climbed to N4.958billion, from N1bn from the previous year.
Market analysts have attributed the weak performance of manufacturing companies to the prevalent macro –economic challenges in Nigeria. While some of them fingered the lack of a sustainable economic direction by the President Buhari-led administration as one of the strong reasons for this, others have hinged it on tight regulation of both the fiscal and monetary authorities. Yet a third group has sadly pointed at the shrinking revenues of the nation, caused by the volatility in crude price, lack of productivity and increased funding for security, in addition to low disposable income in the hands of consumers. These, market observers believe have also been responsible for the near weak performance of other sectors of the economy.
These have dealt a heavy blow on business operations as many firms seem to be struggling to survive.
On its part, the leadership of the Manufacturers Association of Nigeria, MAN has always fingered lack of disposable income in the economy – due to delayed budget passage – as a major cause of mounting inventories of unsold stock in the ware houses of Manufacturers.
“Most of our members complained of their unsold stock inventories, because people are not buying their goods, which can be attributed to the delay in the passage of the 2018 budget.
“A situation where you generate your own power for production does not make you competitive, because whatever is produced in this country is produced at a higher cost when compared to other parts of the world.
“The same goes for the transportation system as we still move our good via roads, even the heavy duty goods. Such good which should go by rail lack enough rail lines to carry them.
“There is a need to develop the transportation sector to the point where it can support the manufacturing sector and also support the economy,” a recent MAN statement expressed.
Market observers have also noted that manufacturing capacity utilization has continued to slide since it hovered between 70 and 75 % from 1975 to 1980’s. There is also stiff competition in the industry as Cadbury, Cowbell and many other small companies continue to push to gain higher market share in the Food and Beverages segment of the market.
Whereas the government has excluded importers of 43 items from accessing forex to boast their market, the recent closure of the border has also impeded exportation of manufactured goods.
In spite of these constraints however, Nestle Nigeria has very clearly performed well over the years.
Before and even during the 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, N19.00 in 2016 and N42.50 in 2017, 47.50 in 2018 and N70.00 in 2019.
“The company’s dividend payout is a bumper harvest. In fact, the company’s performance is highly impressive, especially at this time when the economy is still weak”, said the Managing Director/ CEO of HighCAP Securities ltd, Mr. David Adonri.
Similarly, a shareholder of the company and former President, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu believes that Nestle Nigeria has been impressive with the generous dividend it paid given that the board by discretion could decide not pay dividend without being illegal.
However, Nwosu implores the company to do more in Nigeria by expanding to other parts of country and build even water plants for the host communities while also creating jobs for the teeming numbers of the unemployed.
Nwosu who noted that the percentage the company pays as dividend from its profit was quite high also noted that the owners however take the highest percentage of the dividends as paid on account of the ownership structure that is skewed in favour of the parent company.
‘’In fact, Nestle Nigeria’s dividend is still the highest in the equities market in absolute figure and it is better that whatever interests accrues from deposits these days.
We are happy that they paid us dividend. It would not have been an illegality if they decided not to be this generous. Look around and you see that owners of Nestle shares hardly sell because they know at what price they bought those same shares years ago when they did,’’ enthused Nwosu.
With shares outstanding of 792.66 million, shareholders of Nestle have lost 30.8 per cent ( N452.9) Year-To-Date as its stock price dropped from N1,469.90 per share as at January 2, 2020 to close at N1,017.00 per share last Friday March 6, 2020.
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. Digging further, BH checks 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.
While we wait for the response of its corporate affairs department, Nestle still remains one of the stock is still enjoying the commanding height in the Food/Beverages and Tobacco sub-sector of the NSE. Nestle Nigeria Plc is a member of the respected and reliable nutrition; health and wellness company renowned world-wide for its high quality products.
The company commenced simple trading operations in Nigeria in 1961 and has today grown into a leading food manufacturing and marketing company. Nestle is notable countrywide for sundry household products that 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, Nestle Milo (Chocolate drink) and Nescafe (Coffee) brand of beverages. It was listed on the Nigerian Stock Exchange on April 20,1979.