Nestlé Nigeria Earnings Rise amidst Tons of Hitches
Nestlé Nigeria Plc sees a 5.16% growth in profitability, according to its latest financial statement submitted to the Nigerian Exchange amidst tons of operational hitches. The company faces higher operating costs, losses from foreign exchange related transactions amidst lower export earnings etc.
Investors on the Nigerian Exchange currently value the company at N1.11 trillion, according to stock screened by NAIRALAW as share price appears to have reached its ceiling at N1,400 as a closely-held stock with less than 1billion shares outstanding.
Nestlé S.A-backed consumer goods producer failed to reveal its most recent shareholder information as part of disclosure requirements for listed companies.
However, it had said apart from Nestlé S.A, Switzerland 67.28% shareholding and Stanbic IBTC Nominees Limited with 5.99%, no other shareholder held 5% or more of the paid-up capital of the Company as of 30 June 2021.
Since then, the parent company has bought a large sum of shares from the local bourse, which could possibly have raised its holding as of September 2021 amidst alleged overpriced intercompany loan disbursements.
Recall the parent company was allegedly extending loans to Nigeria subsidiary in unfavourably terms amidst a low interest rate environment. It however appears now that the issue has been partially resolved because Nestle Nigeria access the local loan, according to the recent financial statement.
Though, intercompany loans remain heavy.
A further look into the consumer good producer 9-month financial year 2021 result shows that the outturn was peppered by heavy borrowing costs, which was further clouded by foreign currency exposures.
Earnings from exports sloped downward while local sales jumped over a price adjustment in Nigeria, thus driving topline growth by double-digits. Reduced earnings from exports could mean lesser dollar inflow denied it possible foreign exchange gain such as seen in the comparable period in 2020.
Nestlé Nigeria earnings per share jumped to N42.37, a moderated 5.16% jump, when compared with N40.29, recorded a year ago, though the Nigerian economy has seen stronger growth, from a downturn a year earlier.
Its declared dividend means that the consumer goods company board of directors lower payout when compared with the comparable period in 2020. According to the financial statement submitted to Nigerian Exchange, the total sum declared dividend declined 21% to N28.139 billion from N35.669 billion.
With a history of consistency, the dividend aristocrat earning was flattered by low base effects in 2020, the consumers’ goods giants top line jumped due to upward price adjustments.
Key downsides spotted thus far include a steep rise in operating costs, net finance costs and extended foreign currencies borrowings amidst a series of devaluations of the Nigerian local currency, naira.
The headline inflation rate has been uptrend and production costs across manufacturing sectors have increased just as companies with foreign currency borrowings continue to record losses.
In terms of stock market performance, the company’s share has tumbled more than 7% from the beginning of the year to date. However, the board of directors proposed to pay N25 per share interim dividend.
As good as this sound, the stock has underperformed its peers on the local bourse with a total valuation staying behind N1.2 trillion.
The management said for the period January to September 2021, the company recorded a revenue of N 261.6 billion, up 23% when compared with N 212.7 billion recorded during the same period in the previous year.
Locally generated revenue was N258.316 billion, rising from N208.727 billion in September 2020 while export revenue declined to N3.274 billion from N4 billion.
Expanded by 5.2% year on year, the consumer goods company’s profit after tax printed at N 33.6 billion during the first nine months of 2021 from N31.94 a year ago. The mild profitability growth resulted despite steep topline expansion seen amidst an economic recovery in Nigeria but weak macroeconomic indicators.
The Board of Nestlé Nigeria PLC in its meeting held on 22 October 2021 approved an interim dividend of N 25 per share.
Commenting on the results, the Managing Director and CEO of Nestlé Nigeria PLC, Mr. Wassim Elhusseini said, “We are pleased with the Q3, 2021 performance of our Company which is again, a testament to the dedication and commitment of our people to ensure that we continue to deliver value for our shareholders, our communities and our consumers.”
“It is clear that the business environment will continue to change rapidly during this COVID-19 era. We will, therefore, continue to adapt to new ways of working, ensuring that our business remains agile to continuously deliver our promise of affordable nutritious food and beverages to meet the needs of our consumers”, he added.
Elhusseini said the last quarter of 2021 offers Nestlé Nigeria the opportunity to build on the achievements of the first three quarters.
The Company will remain focused on ensuring the wellbeing of its people and on ensuring the continuous provision of high-quality nutrition to consumers across the country, he added.
At the end of the period, the company’s gross margin contracted by 204 basis points to 38.7% in Q3-2021 from 40.7% in the comparable period in 2020 as the cost of sales grew faster than revenue.
Costs of sales expanded by 30% in the period as against 25.7% growth in revenue.
Analysts said the higher cost of sales reflects the pass-through impact of elevated inflationary pressures – food inflation averaged 20.3% in Q3-21 – on raw material costs. For clarity, Nestlé sources about 80% of its raw materials in Nigeria.
Similarly, EBITDA and EBIT margins declined by 43 and 19 basis points to 24.4% and 22.0%, respectively, in Q3-21 from 24.8% and 22.1% in the comparable period in 2020 following the contraction in gross margin and a 13.0% expansion in operating expenses.
Analysts said the higher operating expenses was triggered by a 22.7% increase in the administrative and 10.9% jump in selling & distribution expense lines.
NESTLE’s earnings were tempered by a 240.3% year on year surge in net finance costs as a faster increase in funding pressures masked the increase in finance income, analysts at Cordros Capital said in a review.
The surge in finance cost was underpinned by the rise in interest expense from N1.62 billion in Q3-2020 to N5.17 billion in Q3-2021 following increased borrowings during the period.
Thus, the company’s total debt increased to N71.72 billion as of 9M-2021 from the beginning of the year total of N40.21 billion. Cordros Capital said a net foreign exchange loss of N562.84 million contributed to the woes.
Notwithstanding, the company’s pretax profit grew by 18.2% year on year to N18.21 billion in Q3-2021 from N15.40 billion last year. Subsequent to a tax expense of N6.35 billion, profit after tax printed N11.85 billion from N10.11 billion in Q3-2020.
In a review, analysts at Cordros Capital said although Nestlé Q3-21 revenue growth remains supported by low base effect, it marked the fifth consecutive quarter of top-line expansion.
Over the medium term, analysts believe the revenue growth is sustainable given the gradual pickup in the food segment amid stiff competition from unlisted brands.
However, they noted that concerns remain on the company’s growing finance costs arising from the increase in foreign currency debt amid the weakening naira. “We expect the company to deliver strong earnings growth in 2021”, analysts at Cordros Capital projected. Nestlé is down by -6.6% year to date, compared to the Consumer Goods index (-1.7%) and the broader All-Share index (+3.8%). #Nestlé Nigeria Earnings Rise amidst Tons of Hitches
Read Search: Share of food in consumers spending is considerably large…
The post Nestlé Nigeria Earnings Rise amidst Tons of Hitches appeared first on NAIRALAW.