Nestle Nigeria Plc, one of the largest consumer goods firms in Nigeria has defied the odds as the company delivered strong results amid a slowing economy, a weaker local currency and foreign exchange restrictions.
For the year ended December 2015, Nestlé’s net income increased by 6.74 percent to N23.73 billion from N22.23 billion as at December 2014.
Pre tax profits jumped by 19.99 percent to N29.32 billion while sales jumped by 5.54 percent to N151.27 billion the period under review.
Analysts say the performance of Nestle is commendable as Nigerian consumer firms struggled throughout last year due to the sudden devaluation of the currency, fuel shortages that spiral up distribution costs, shortages of dollars and rising inflation that constrained consumer wallets.
“This is a strong result in a challenging business environment,” said Tajudeen Ibrahim, Head Equity Research at Chapel Hill Denham by phone.
“The top lines got a boost as a result of price increase on its products which l think is necessary for a business like Nestle that have exposure to foreign exchange risk,’’ said Ibrahim.
Indeed 2015 was a horrendous year for consumer goods firm as growth in the economy of Africa largest economy expanded by just 3 percent, about half the level of the previous year.
The plummeting GDP was due to a sharp fall in the price of oil by 60 percent $40 a barrel. Oil accounts for two thirds of government revenue and 90 percent of foreign exchange earnings.
To further exacerbate the already anemic position of these firms is the continued rise in inflation has encumbered consumer spending.
Inflation accelerated to 11.4 percent on an annualized basis from 9.6 percent in January, according to the National Bureau of Statistics.
Further analysis of the financial statements of Nestle shows marketing and distribution expenses increased by 4.98 percent to N25.90 billion in the period under review.
Gross profit moved by 10 percent to N67.34 billion. Gross profit margin increased to 44.51 percent in 2015 as against 35.32 percent in 2014.
Nestlé’s finance costs were down by 8.30 percent to N4.86 billion in 2015 from N5.30 billion in 2014. This means the company is paying back some of the loans borrowed from Nestle Netherlands.
The Nigerian consumer goods giant has an aggressive dividend policy given its high payout to shareholders.
A high payout ratio signifies a company is in sound financial heath and it also makes share price attractive to investors.
“Only Nigeria Breweries with a payout ratio of 99 percent have beaten Nestlé’s 97 percent,” said Ibrahim.
Nestlé’s share price closed at N680 on the floor of the exchange while market capitalization was N539 billion.
BALA AUGIE
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