….FY16 FX loss swells
Nestle Nigeria Plc, a unit of the world’s biggest company, reported full year revenue that topped analyst projections, fueled by creative price increases for its products.
For the year ended December 2016, Nestle’s sales rose 20.25 percent to N181.91 billion from N151.27 billion the previous year. Analysts forecast sales of N173.64 billion and a profit of N7.58 billion, according to data compiled by BusinessDay.
The share closed at N691, valuing the company at N498.12 billion.
“FY 2016 Sales were up 20% y/y, 5% ahead of our 2016e forecast,” said analysts at CSL Research Limited in a recent note to BusinessDay
“We believe this was largely driven by the company’s less-elastic product portfolio, creative price increases and weaker competition from imported brands,” said analysts at CSL Research.
Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited said the hike in price that took place in the fourth quarter of the year was a boon to Nestle.
The company has completed its water manufacturing plant in the capital city Abuja- that helped bolster sales in the period under review.
The adoption of a flexible exchange rate regime in June last year that saw the naira lose 40 percent of its currency against the U.S currency undermined the margins of consumer goods firms that have dollar denominated debts in their capital structure.
To further exacerbate the anemic situation of consumer goods names is the spiraling inflation exerting pressure on production, especially for those that import most of raw materials to meet production.
Nestles’ full year net income dropped 66.70 percent to N7.92 billion, on the back of a foreign exchange loss of N16.28 billion and the expiration of a pioneer status.
Pioneer Status is a tax holiday granted to qualified (or eligible) industries anywhere in Nigeria.
A five-year tax holiday[3] is granted in respect to companies operating in eligible industries, while a seven-year tax holiday is given in respect of industries located in economically disadvantaged local government area of the Federation.
Nestles’ gross margins fell to 41.60 percent in December 2016 as against 44.50 percent as at December 2015. Net margins moved to 4.40 percent in December 2016 as against 15.70 percent as at December 2015.
The Nigerian consumer goods giants’ production spiraled as input cost of sales moved by 27.0 percent to N106.58 billion while cost of sales ratios were increased to 58.85 percent in December 2016 from 55.47 percent as at December 2015.
The impact of the devaluation on the operations of Nestle is not severe when compared to its peers. This is because the company sources 70 percent of its raw material locally.
Fast Moving Consumable goods firms in Africa’s most populous nation have been grappling with a severe dollar scarcity that prevented most of them from importing raw materials and machinery.
Consequently, companies scaled back on expansion plans while there were massive downsize of staff.
The repercussions of the capital controls imposed by the central bank were that the economy contracted by 1.50 percent in the fourth quarter, according to a recent report by the National Bureau of Statistics (NBS). It is the worst recession in 25 years.
Inflation for the month of January accelerated to 18.70 percent, the highest in 15 years.
BALA AUGIE
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