Expanded product portfolio spurs Nestle to grow as earnings spike

Nestle Nigeria Plc’s expanded product portfolio and its ability to increasingly provide value to customers amid a challenging operating environment has spurred the consumer goods giant to growth, as earnings spiked in the first quarter of 2016.

For the first three months through March 2016, Nestlé’s net income surged by 126.44 percent to N6.68 billion from N2.95 billion the previous year. Sales were up by 31.43 percent to N36.13 billion despite a weak consumer discretionary spending.

“The company has improved on its sales efforts outside of the country especially to neighbouring African countries like Niger, Ghana and Guinea while growing its market share in Nigeria,” said Mosope Oluwapelumi, equity research analyst with Meristem Securities Limited, in an email note to BusinessDay.

“We anticipate a positive year-on-year growth in Revenue with a corresponding hike in profit before and after tax, and suitable dividend distribution for 2016 full year,” said Oluwapelumi.

BusinessDay calculations showed a 616.67 percent to N300.17 million in the period under review also helped bolster the company’s profits.

Also, the Nigerian conglomerates ability to translate top line impressive performance to bottom line growth is responsible for strong margins and the maximisation of shareholder’s value.

Nestlé’s solid brands across all spectrum gives it pricing advantage over competitors as gross margins increased to 49.21 percent in 2016 from 44.21 percent in March 2015. Net margin, a measure of profitability and efficiency jumped to 18.48 percent in 2016, from 10.70 percent in 2015.

Experts say the company’s growth trajectory in a tough and unpredictable macroeconomic environment is commendable and the positive key ratios means there is light at the tunnel for consumer goods firms in Africa’s largest economy.

A hike in transport fare caused by recurring fuel scarcity and delay in the planting season that sent the price of food dampened consumer wallets and pushed inflation rate to 12.80 percent in March from 11.40 percent in February.

Economic growth slowed to 2.80 percent, the lowest in a decade. This is because of a drop in oil price and weak currency that forced the Central Bank to impose capital controls on imports.

These policies, analysts say, is killing businesses since they cannot access the desired dollars to import raw materials for the purpose of production.

There are upside potentials for consumer goods firms in Nigeria as favourable demographics, a stable economy, and the removal of infrastructure bottlenecks will spur these firms to growth.

Further analysis of Nestlé’s financial statement shows cost of sales increased by 19.38 percent to N18.35 billion, while cost of sales ratio fell to 49.21 percent in 2016 from 55.75 percent in 2015.

A lower cost of sales ratio means the company is spending less to produce each unit of products.

Nestlé’s share price closed at N671 on the floor of the exchange, while market capitalisation was N531.81 billion.

BALA AUGIE