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Nestlé Nigeria: Positioned for growth amid economic uncertainty

Nestlé Nigeria is a giant in the fast moving consumer goods (FMCG) industry and one of Nigeria’s largest food and beverage companies. It has its headquarters in Switzerland.

The company commenced operations in Nigeria in 1961 and was listed on the nation’s bourse in 1979. From its first factory commissioned in 1982, Agbara, Ogun-State, it currently has three manufacturing sites, with a recently commissioned water factory in Abaji— outskirts of Abuja.

The principal activities of the company include manufacturing, marketing and distribution of food products, including purified water throughout the country. The company also exports some of its products to other countries within and outside Africa.

Backward integration

Nestlé Nigeria is known for its active role in backward integration and local sourcing of raw materials in the country.  According to its manufacturing operations report, the company purchases its raw and packaging materials majorly from local sources, as it hopes that it will help develop the economy, create job opportunities and strengthen the naira.

With a wide variety of products ranging from cereals to milk, coffee, seasoning, spices to beverage, Nestlé is the fourth largest company in the Nigerian bourse after Dangote, MTN and, recently, BUA.

It sources 80 percent of its maize, sorghum, millet, soya, cassava starch, cocoa powder, and palm olein from more than 41, 600 local farmers and processors scattered across the country.

Nestlé Cereals Plan project has over 30,000 farmers who supply 100 percent of the grain requirement for Golden Morn Maize. Through its Sorghum and Millet in the Sahel (SMS) project, now called Nestlé Nigeria & IFDC / 2Scale Project Sorghum & Millet, it engages a lot of farmers, thereby raising their incomes while reducing unemployment.  In the course of this project, the food and beverage giant has engaged no less than 10,671 farmers.

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Nestlé Nigeria helps farmers improve their living by investing in sustainable farming practices through the Sorghum and Millet in the Sahel and Feed Future Nigeria and Nestlé Maize Quality Improvement projects.

According to the company’s financial report, “80 percent of the agricultural input in our production is sourced locally. In addition to providing a steady source of income by buying directly from local aggregators and farmers, we have trained more than 30,000 farmers on good farming practices to not only increase productivity but also improve the quality of the grains to meet Nestlé’s high-quality standards.”

The company also sources over 90 percent of its packaging materials locally. The company says it is exploring more local sourcing opportunities, which still exist for various spices, vegetables and high-quality cassava flour, adding that it plans to increase its backward integration profile from its current level of 80 percent following its drive to support the growth of SMEs in Nigeria through its initiatives.

At its 2019 Suppliers’ Day event in Lagos, Nestor Finalo, supply chain manager for Nestlé Nigeria, disclosed that local suppliers constituted more of its direct suppliers as the company had up to 1,000 direct suppliers with 700 locally, adding that the food maker planned to bring in many more local suppliers as long as they were able to fulfil all the requirements attached.

“Responsible sourcing has always been at the core of Nestlé Nigeria’s operations. We are committed to long-term partnerships with our suppliers as we sustain efforts towards increasing the percentage of raw and packaging materials sourced locally,” Finalo had said.

Financial and market performance

Nestlé, with a strong portfolio, has been on top of its game for many years and has maintained a profile of continued growth in revenue and profits, surviving economic headwinds unlike many peers in the FMCG industry.

According to a public statement from the company, “Nestlé is committed to margin expansion. We have set an underlying trading operating profit margin target of 17.5 percent to 18.5 percent by 2020, up from 16 percent in 2016.

“Our primary driver is to reduce structural costs in non‑consumer facing areas. Well‑identified projects in manufacturing, procurement and general administration are expected to deliver total savings of CHF 2.0 to 2.5 billion ($2.05 billion to $2.57 billion) by 2020.”

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BusinessDay analysis of Nestlé’s financials for nine months to September 30, 2019 showed that the company recorded revenue worth N211 billion, which was a  four percent increase from the N203 billion recorded in the same period of 2018. This was in spite of serveral uncertainties in the Nigerian economy, particularly low consumer purchasing power and deepening poverty.

The bulk of its revenue came from its food subsector which contributed N131.8 billion. Its beverage subsector contributed N79.5 billion while the company got N3 billion from its export earnings.

Its profit before tax also grew between January and September, 2019, reaching N56 billion, which is 18 percent higher than N 48 billion achieved in the same period of 2018. The company recorded N36.8 billion as its profit for the period, representing an 11 percent increase from the 33.1 percent realised in 2018.

However, Nestlé’s total equity and share capital remained the same, having N56 billion and N396 million respectively in 2018 and 2019.

Further analysis of its financials shows that the company may realise revenue worth N281 billion for the full year of 2019, representing a 5.6 percent increase in its income.

It is able to efficiently use its assets and shareholders’ funds to generate earnings. In 2018, its return on assets and equity hit 5-year high and till date, it remains one of the top performers on the exchange with a share price of N1, 469 per share.

CSR Activities

Nestle Nigeria is an advocate of giving back to its host community as it actively engages in corporate social responsibility (CSR), especially in activities that centre around SME development, environmental protection, and  technological advancement, among others.

In 2019, it established its Research and Development (R&D) Innovation Challenge as part of the efforts to contribute to the local innovation ecosystem, with the hope that it will help boost local entrepreneurship as well as provide a platform for start-ups, researchers and developers to contribute to local sustainable growth by bringing breakthrough ideas to the market.

The company, also in 2019, partnered with Wecylers, a start-up recycling firm to achieve a clean and healthy environment

“One of our ambitions at Nestlé is to strive for zero environmental impact in our operations as we strive towards a waste-free future. A key part of achieving this goal is to make 100 percent of our packaging reusable or recyclable by 2025,” said Mauricio Alarcon, chief executive officer of Nestlé Nigeria, said recently.

Aside employing members of its host community, the company also aims to help 10 million youths globally to have access to economic opportunities by 2030.

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