WED, MARCH 06 2019-theG&BJournal-Nestle Nigeria Plc’s fourth quarter profit rose more than analysts estimated as ebbing foreign exchange losses resulted in reduction in debt.
The unit of the world’s biggest food company has been leveraging on its strong balance sheet positions, product and brand durability to tap into Nigeria’s robust economy that crave for consumption.
Net income climbed 27.23 percent to record N43 billion for year ended December 2018 from a year earlier, the consumer goods giant said on Wednesday. That beat the N42.10 billion average forecast in a Bloomberg survey of four analysts.
Sales were up 9.02 percent to N266.14 billion as at December 2018, as consumer wallets remain pressured.
The growth in margins and at the bottom line (profit) was largely driven by a significant reduction in interest expense by 82.84 percent to N2.60 billion in December 2018 from N15.10 billion despite weak operating performance.
Analysts say the company did not suffer foreign exchange losses in 2017 compared to peers as the devaluation of the currency balloon dollar denominated debt.
“It is a trend we see in other consumer goods firms because most of them had issued equity capital via rights issue to reduce debt,” said Ifedayo Olowoporoku, consumer goods analyst with Vetiva Capital Management Ltd.
“Nestle is still one of the best performers in the industry as evidenced in its strong margins, robust working capital position, diversified product base, and a solid return on equity,” said Olowoporoku.
The adoption of a flexible exchange rate by the central bank in mid-2017 was a boon for firms because it ended the pang of dollar scarcity that paralyzed business activities, and tipped the country in its first recession in 25 years.
Nestle benefited from the foreign exchange policy as times coverage ratio improved to 23.23 times operating profit in December 2018 from 1.65 times. This means operating profit can cover interest expenses 23 times.
Debt to equity ratio fell to 13.81 percent in 2018 from 45.81 percent the previous year, which means the level of debt in the balance sheet.
Amid low consumer purchasing power, decrepit infrastructure, and high stock turnover, Nestle is able to turn each Naira invested in sales into higher profit while contemporaneously using owners’ resources to in underpinning profit.
The company’s net profit margin increased to 16.16 percent in December 2018 from 13.18 percent as at December 2017. Gross profit margin moved to 50.29 percent in the period under review as against 41.39 percent the previous year.
Consumer goods firms in Africa’s largest economy are grappling with rising unsold inventory as weak economies hinder consumers from opening their purse string despite an improvement in Purchasing Managers Index (PMI).
PMI grew at a slower rate when compared to 58.5 index points recorded in January; the Central Bank of Nigeria (CBN) said the index stood at 57.1 index points as at February, indicating an expansion in the manufacturing sector for 23 consecutive months.
87 million Nigerians, almost half of the population, live on less than $1.90 a day, according to a latest report by the United Nations.
While the economy expanded by 2.38 percent in the fourth quarter of 2018, it is below the 7.50 percent recorded a decade ago.
Neslte Nigeria’s share price closed at N1510 as of 1:30 PM IN Lagos, valuing it at N1.19 trillion.
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