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Nestle’s 2018 performance: In troubled times, don’t ruffle the boat!

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Maurico Alarcon, MD/CEO, Nestle Nigeria Plc

By JULIUS ALAGBE

The recent declaration by Nestlé Nigeria that it would be paying N38 dividend to shareholders arising from its full year 2018 trading results is being seen by analysts as indicative of the troubled times, which the Nigerian economy is yet enmeshed in.

This is moreso when the leading food producer could only manage a 9.1 per cent revenue growth in the year under consideration as it posted a turnover of N266.28bn, compared to the N244.15bn posted in 2017.

The company’s gross profit showing for the year also followed the same marginal increase and slow growth pattern as it moved to N113.9bn, which is only slightly higher than the N100.9bn recorded in the previous year. As for profit before tax, it rose to N59.75bn, up from the N46.83bn that had been recorded in 2017. The marginal growth tracks continue in the area of assets which rose in 2018 to N162.3billion. It had been N146.8billion in 2017.

Responding to this outcome, the company’s Managing Director, Mr Mauricio Alarcon, while acknowledging the challenges of the era, would however rather prefer to see the cup as half full:

“We are pleased with our 2018 results, considering the increasingly competitive business environment. The growth was driven by the continued loyalty of our consumers as we focused on consistently delivering high-quality, tasty and nutritious food products adapted to their preferences.

“The discipline and dedication of our people also supported this business outcome. The company has continued to invest in innovation to keep delighting consumers with its iconic brands,’ Alarcon affirmed.

He however also went on to acknowledge that a core imperative for the company now was the need to respond to the twin demands of delivering value to customers and shareholders and that this would continue to be a principal point of focus and attention for him and his management team.

“We will focus on leveraging our capabilities to deliver value to our consumers and our shareholders as we contribute to the growth of the local economy and to improving livelihoods within our communities,” Alarcon outlined.

 

And what do the analysts say?

The thinking of informed market watchers is that Nestle’s 2018 full year performance underscores the reality within the national economy that the long anticipated market rebound has still not taken place.

This is notwithstanding the fact that the declaration of the final dividend of N38.50 per share for the financial year ended December 31, 2018 is in addition to an interim dividend of N20 already paid by the company in the course of the outgone trading year.For a stock that was trading at N1545.00 at the close of trading on Thursday, March 15, a total dividend pay-out of N58.50 at the close of the trading year, may not have been the investor’s dream yield upon picking it up in the first place.

Our analysts are thereforenot impressed, insisting that like Houdini, the fact of a long-standing player like Nestle finding and giving out some incentives to keep the brand afloat, is not totally unexpected. They would rather be more comfortable with better business-line growth movements that in their view would be a more enduring testament of the resilience and strength of the overall brand itself.

 

A lot of the trouble is elsewhere…

To be fair to companies like Nestle, a lot of the negative and less than satisfactory sentiments and outlook that they are grappling with are traceable to a rash of factors that are not within their immediate purview.

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There are questions of industrial policy inadequacies, heavy financing and operating costs, inflation, unemployment and underemployment and reduction in demand for fast moving consumer products with attendant impact on revenues and profits.

There are also issues of rising production costs, low level of power supply, weak corporate earnings, increase in cost of sales and administrative expenses and thespike in cost of materials used for production. It is indeed a very tough call doing business in these parts.

Products to the rescue

One thing that remains a strong point for Nestle Nigeria however is its relatively quite strong and dominant products profile.

Over the years, the company has been responsible for many of the ubiquitous food brands that you find in Nigeria and indeed spanning further across the West and Central African regions. They include the breakfast delight of children, Golden Morn, the beverage drink, Milo, and the popular Maggi seasoning. Others are Nescafé and Nestlé Pure Life.

However, the general drop in purchasing power of the average Nigerian has also had its impact on the ability of consumers to pick up these products off the trading shelves as they had been wont to do almost quite casually in the past. There are also the additional factors of expanding competition and changing market dynamics.

 

Watching the Competition

Like many of the other ageing conglomerates in the Nigerian business arena, six-decade old Nestle has to respond to competition that has crept up on it in more recent years. And some of these new entrants may indeed have been more flat-footed and as such capable of manoeuvring more quickly.

One of these notable competitors is the Promasidor Group that has introduced such runaway success brands as Cowbell.

Of the older competitors, Cadbury which recently bounced back to profitability after a fairly long time out in the cold has its Bournvita playmaker which is a rival of sorts to Nestle’s Milo in the beverages segment.

And as part of what analysts see as a determined push to take the battle to its competitors, Nestle has commenced reviewing some of its older products with a view to sharpening their market bite.

“The multi-cereal Nestlé Golden Morn Puffs fortified with iron was introduced during the year.” Alarcon confirmed in his accompanying note on the 2018 trading year results. However, like every new product revision, it will take a number of quarters to begin to see the viability and success potential of the new entrant.

 

Going forward

Undoubtedly, Nestlé Nigeria PLC remains one of the largest food and beverage companies in Nigeria and Africa.

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Directly responsible for over 2,300 direct employees, the company maintains three manufacturing centres and nine offices spread across the country.But being a company in relative mid-life, it invariably has to deeply review its operations and projections with a view to bringing forth an even more rejuvenated brand.

For example, though it occupies an enviable place at the Nigerian Stock Exchange, one of the long-term issues militating against Nestle’s stock fortunes is its relatively high unit price. Trading at a pricey N1,545.00 as at Thursday, it is largely considered by the investing public as being an essentially ‘illiquid stock’ and is therefore not the considered toast of the general trading floor.

More appropriately then, the Nestle stock fits into the mould of ‘investment buffer stocks’ and by this the reference is to those stocks patronised by investors who want to hold on across the long haul. Broken down, those who are most likely to be found with Nestle stocks are the bigger players in the market and institutional investors.

Another perceived hindrance to Nestle’s overall performance would be its having to live with the reality of being a global brand that is yet operating in Nigeria, along with the limitations of blending straight-jacketed global best practices in its business structures and systems  alongside relatively more fluid local ones.

To circumvent some of these business place issues, the analyst, Ireyi Abdul thinks that the way out would be for the firm to engage a brand consultant that would be assigned the task of carrying out an overall make-over. This he says would equally be the enduring panacea to grappling with the challenge of newer, smaller and far more nimble firms pushing aggressively into the market and battling the behemoth for chunks of its market share.

 

On the balance side

For a firm that prides itself in its ability to take a long-term view and disposition to its business operations, there is clearly enough confidence in-house that Nestle will yet continue to exert itself and ride on higher.

Still riding on its philosophy of creating value, both for shareholders and for society, what in Nestle-speak is referred to as Creating Shared Value (CSV), the focus going into the future as far as we can see would continue to be placed on the production, distribution and marketing of foods and beverages with a nutrition, health and wellness dimension.

 

Other engagements

In more recent times, Nestle has been positioning itself as an organisation that is involved in popular causes. One such foray has seen it endowing the Nestle Prize for Nutrition Reporting in the Diamond Awards for Media Excellence (DAME).

It also has made it a practice to actively canvass for greater gender-sensitivity and inclusiveness in the work place through itsrelatively ambitious Gender Balance Acceleration Plan ‘From Aspiration to Action,’ which was a visible component of its offering for the just commemorated International Women’s Day 2019.

In particular, the plan and programme in the Central and West Africa Region (CWAR), is to ‘bring the Gender Balance Acceleration Plan to life through its multi-pronged initiatives, such as trainings to raise awareness on gender biases, career development and mentoring programmes for women, gender-sensitive succession planning, offering breastfeeding rooms and nurseries at work, as well as the implementation of its Maternity Protection Policy.’

With in-company findings also revealing that the majority of consumers of Nestle’s products in the region are women, ensuring a better gender-fit would therefore also be a practical way of rewarding customer loyalty, or wouldn’t it?

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