Nestle Nigeria: Steady growth in economic indicators boosts revenue, profits


Nestle Nigeria Plc recorded increased performance in nine months ended September 30, 2017 over stability in macro economic indicators, most especially, foreign exchange market.

Highlighting the multinational company performance in the period under review pointed to, significant reduction in foreign exchange risk to production costs, secondly, stable raw materials price outlook, and, possible stable selling prices in view of election spending boost to aggregate demand.

Also, vis-a-vis the possible impact of pricing on margin going forward, is the brand premium – hence stable market share – that Nestle Nigeria enjoys across key products.

The demand boosted the company’ revenue that gained 43.1 per cent while reduction in finance costs dropped by 32.3 per cent to leverage on 523 per cent increase in profit before tax.

Nestle Nigeria’s significantly deleveraged on balance sheet (borrowings reduced by 42per cent over nine months of 2017) and importantly, significantly reduced foreign exchange headwinds on stronger Dollar/Naira outlook, amid the repayment of intercompany loans (N31.3 billion of the N38.3 billion due this year has been repaid Year-till-Date).

Following stability in foreign exchange market, Nestle Nigeria net foreign exchange loss dropped to N11 billion in nine months of 2017 from N19 billion recorded in nine months of 2016.

Meanwhile, total assets of Nestle Nigeria dropped by six per cent, primary driven drop in non-current assets and current assets in nine months ended September 30, 2017.

The company’s 32 per cent drop in short-term liabilities dragged its working capital (an indication that shows company’s efficiency and its short-term financial health) to positive position.

Total liabilities also drop by 18 per cent, majorly contributed by drop in loans and borrowing and trade and other payables.

However, the balance sheet capacity of the company is still on the stable position. Though, the company’s liquidity exposure in financing its short-term liabilities remained a concern.

The share price of Nestle Nigeria as at September 16, 2016 was trading at N1,315.00 while its market capitalisation stood at N990.82billion as at November 30, 2017.

Profit positively impacted by stability of Naira

With reduced finance expenses due to stability in foreign exchange, Nestle Nigeria recorded a stronger performance in actual profit and loss figures that improved its profit.

Revenue rose by 43.1 per cent from N129 billion in nine months of 2016 to N185 billion in nine months of 2017. The company generated N183 billion in Nigeria alone, aside N1.89 billion generated through exportation.

Cost of sales also increased by 41 per cent from N77.5 billion to N109 billion, to leverage on 46.1 per growth in gross profit from N51.9 billion to N75.88 billion in nine months of 2017.

The increase in the cost of sales was mainly due to Nestle Nigeria higher material costs resulting from currency devaluation.

Consequently, the company’s proportion of COS/Revenue moved from 59.89 per cent in nine months of 2016 to 59 per cent in nine months of 2017.

Total operating expenses however rose by 23.5 per cent to N32.8 billion from N26.5 billion, driven by growth in market and distribution expenses.

The breakdown of operating expenses include 27 per cent increase in  Marketing and distribution expenses from N19.9 billion to N25.26 billion while administration expenses stood at N7.5 billion,13 per cent above N6.7 billion recorded in nine months ended September 30, 2016.

Operating Profit for the period has increased by 70 per cent from N225.37 billion   to N43 billion, despite pressure on input costs.

For the nine months of 2017 under review, Nestle Nigeria finance income recorded a growth of 197 per cent from N2.1 billion to N6.28 billion.

In addition, Finance charges, dropped 32.3 per cent to N14.89 billion from N21.9 billion.

The significant increase in Finance charges lifted that company’s profit before tax that gained 523 per cent from N5.5 billion to N34.3 billion in nine months ended September 30, 2017.

With about 129 per cent increase in tax charges, profit after tax also increased from N484 million in nine months ended September 30, 2016 to N22.9 billion in nine months ended September 30, 2017.

Underlying profitability indices marked a growth performance. Profit margin increased from 4.3 per cent to 18.5 per cent.

Return on assets significantly moved from 3.2 per cent to 21.5 per cent while Return on equity closed nine months of 2017 at nearly 50 per cent from 1.5 per cent in nine months ended September 30, 2016.

Stronger equity despite drop in total assets

The company’s total assets thus dropped by six per cent to N159 billion as at September 30, 2017 from N169.6 billion as at December 31, 2016.

Long-term assets had dropped by one per cent from N71.8 billion to N70.9 billion while Current assets also tumbled by nine per cent to N88.5 billion as against N97.7 billion in previous year.

Total liabilities dropped from N138.7 billion as at December 2016 to N113 billion as at September 30, 2016.

Current liabilities stood at N82.7 billion as against N121 billion as at December 2016 while long-term liabilities rose by  74 per cent  from N17.7 billion to N30.75 billion as at September 2017.

Shareholders’ funds however, increased by 49 per cent from N30.9 billion in 2016 to N45.99 billion as at September 2017.

The proportion of total equity to total assets increased from 18.2 per cent to 28.85 per cent while total liabilities to total assets dropped from 81.8 per cent to 71.1 per cent.


Nestle Nigeria emerged stronger with liquidity, signposted by positive working capital for immediate liabilities coverage.

Current ratio, which measures the financial agility of a company by relating current assets to relative short liabilities, moved to 1.7 times in nine months of  2017  compared with 0.8 times in prior nine months of 2016.


The Board and Management had promised to implement necessary measures and cost saving initiatives to address the macroeconomic challenges and remain fully committed to the long term potential of the business in the country.

From estimated 39 per cent growth in 2017 forecast, Nigerian NewsDirect forecast sales growth to moderate to 10 per cent average over 2018-2019 forecast, as the impact of price hikes wanes.

Nigerian NewsDirect 2018-2019 forecast revenue growth forecast, 300 basis points below Nestle five-year historical average growth rate, is conservative.

We note downside risks such as possible cut to selling prices (as competition intensifies) and less-than-expected impact of election spending on aggregate demand. Yet, we reiterate tailwinds such as, one, Nestle brand premium, two, products affordability via smaller package offerings, and three, and extensive distribution network.

Nigerian NewsDirect observed that the performance of Nestle Nigeria for the nine months unaudited results underlined the country’s general economic recovery.

We urged the management to review local products and business divestment so as to reduce its expenses outside the country.

Price stability remains a concern and it is very important that the management of Nestle Nigeria streamlines its operations in order to attract investors’ confidence in share price appreciation and dividend payout.

There is need for the company to increase marketing investments, accelerate innovation and ensure responsive to consumer need.

Overall, there is reasonable basis to assume that the company would recovery going forward and investors are advised to trade with caution.

We there urged investors to BUY Nestle Nigeria shares on The Nigerian Stock Exchange (NSE).




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