Economy

How Forex, Tax Frustrated Nestlé Nigeria Plc in 2016

Published

9 years ago

24/03/2017

Modupe Gbadeyanka

By Modupe Gbadeyanka

The year 2016 would go down as an annus horribilis in the annals of Nestlé Nigeria Plc as the company posted its lowest EPS (-67% YoY to N10) in eight years even as the stock price declined to multi-year lows as noted by ARM Securities in its earlier report.

According to ARM Securities, as with the broader economy, Nestlé’s result was weighed down by fall-out from the 53 percent Naira depreciation which cascaded into N16.3 billion in FX losses over 2016.

In addition, the expiration of tax holidays on its Agbara factory drove a 44pps YoY jump in effective tax rate to 63 percent.

Accordingly, Nestlé reported a weighty decline in dividend per share of N10.00 (-67% YoY) which translates to a dividend yield of 1.3% using last trading price.

Going into 2017, the key risk for Nestlé remains the sizeable FX exposure on its books which comprises FCY loans to its parent and trade payables.

In addition, continued rise in domestic grain prices, which drove gross margin pressures in 2016, poses downsides to earnings.

As earlier stated by ARM Securities, Nestlé booked N16.3 billion in FX losses, housed under finance expenses, following Naira depreciation over 2016.

The FX losses stemmed from sizable Dollar borrowings, which rose 27 percent YoY to $152 million (92% of total debt).

Nestlé noted that an illiquid FX market compelled the company to acquire a one-year $40 million loan1 from its parent company (Nestlé S.A) to address working capital needs.

Furthermore, Dollar paucity forced Nestlé to seek extended credit terms from related parties (+182% YoY to N38.6 billion) which underpinned the jump in trade payables to record levels

(+76.4% YoY to N64.7 billion).

Over FY 16, Nestlé paid $15.1 million to related parties as part repayment on FCY loans owed while cash rose four times to multi-year highs of N51.4 billion presumably being stockpiled to acquire needed FX for loan repayments of N38.3 billion due in 2016 and 2017.

As earlier stated, higher effective taxes over 2016, following the expiration of pioneer tax holiday on its on Flowergate factory at Agbara, piled more pressure on earnings. The development drove a steeper contraction in post-tax earnings (-67% YoY) relative to pre-tax (-25% YoY).

In addition to FX and taxation issues, Nestlé struggled with rising input costs as elevated West African demand for Nigerian grains, a by-product of naira weakness underpinned an upswing in prices of key inputs YoY (CPO: +250%, sorghum: +150%, Maize: +108%).

To combat input cost inflation (COGS: +27% YoY), Nestlé implemented price increases of 30%-40% across its product portfolio (particularly Maggi and Milo which comprise ~75% of revenue) which translated into double digit growth in revenues (+20.3% YoY) largely buoyed by its food segment (+25.4% YoY).

Nonetheless, relative to the inflation in grain prices, the price hikes paled in comparison, which resulted in gross margin compression to four-year lows of 41 percent.

Going into 2017, as with most FMCGs, Nestlé guides to pushing through further price hikes to offset the inflationary pressures. That said, softer real income levels2 should result in subdued volume growth and as such we see topline growth pulling back from the 2016 heights. Specifically, we look for a 14.5 percent YoY increases in sales to N208.3 billion as we think Nestlé’s defensive product portfolio and relatively better pricing power should help weather the macro headwinds to consumer purchasing power.

In terms of input costs, we expect grain prices to remain elevated over H1 2017 due to higher regional demand for domestic grains (such as maize and sorghum) on the back of relative weakness of the Naira (NGN) vis-à-vis other West African currencies. However, towards H2 2017, we expect regional demand for local grains to moderate as improving FX liquidity drives naira appreciation at the parallel market and reduces bargaining power of local suppliers.

Source: www.armsecurities.com.ng

Economy

Customs Street Chalks up 0.12% on Santa Claus Rally

Published

3 hours ago

25/12/2025

Dipo Olowookere

By Dipo Olowookere

The Nigerian Exchange (NGX) Limited witnessed Santa Claus rally on Wednesday after it closed higher by 0.12 per cent.

Strong demand for Nigerian stocks lifted the All-Share Index (ASI) by 185.70 points during the pre-Christmas trading session to 153,539.83 points from 153,354.13 points.

In the same vein, the market capitalisation expanded at midweek by N118 billion to N97.890 trillion from the preceding day’s N97.772 trillion.

Investor sentiment on Customs Street remained bullish after closing with 36 appreciating equities and 22 depreciating equities, indicating a positive market breadth index.

Guinness Nigeria chalked up 9.98 per cent to trade at N318.60, Austin Laz improved by 9.97 per cent to N3.20, International Breweries expanded by 9.85 per cent to N14.50, Transcorp Hotels rose by 9.83 per cent to N170.90, and Aluminium Extrusion grew by 9.73 per cent to N16.35.

On the flip side, Legend Internet lost 9.26 per cent to close at N4.90, AXA Mansard shrank by 7.14 per cent to N13.00, Jaiz Bank declined by 5.45 per cent to N4.51, MTN Nigeria weakened by 5.21 per cent to N504.00, and NEM Insurance crashed by 4.74 per cent to N24.10.

Yesterday, a total of 1.8 billion shares valued at N30.1 billion exchanged hands in 19,372 deals versus the 677.4 billion shares worth N20.8 billion traded in 27,589 deals in the previous session, implying a slump in the number of deals by 29.78 per cent, and a surge in the trading volume and value by 165.72 per cent and 44.71 per cent apiece.

Abbey Mortgage Bank was the most active equity for the day after it sold 1.1 billion units worth N7.1 billion, Sterling Holdings traded 127.1 million units valued at N895.9 million, Custodian Investment exchanged 115.0 million units for N4.5 billion, First Holdco transacted 40.9 million units valued at N2.2 billion, and Access Holdings traded 38.2 million units worth N783.3 million.

Economy

Yuletide: Rite Foods Reiterates Commitment to Quality, Innovation

Published

4 hours ago

25/12/2025

Adedapo Adesanya

By Adedapo Adesanya

Nigerian food and beverage company, Rite Foods Limited, has extended warm Yuletide greetings to Nigerians as families and communities worldwide come together to celebrate the Christmas season and usher in a new year filled with hope and renewed possibilities.

In a statement, Rite Foods encouraged consumers to savour these special occasions with its wide range of quality brands, including the 13 variants of Bigi Carbonated Soft Drinks, premium Bigi Table Water, Sosa Fruit Drink in its refreshing flavours, the Fearless Energy Drink, and its tasty sausage rolls — all produced in a world-class facility with modern technology and global best practices.

Speaking on the season, the Managing Director of Rite Foods Limited, Mr Seleem Adegunwa, said the company remains deeply committed to enriching the lives of consumers beyond refreshment. According to him, the Yuletide period underscores the values of generosity, unity, and gratitude, which resonate strongly with the company’s philosophy.

“Christmas is a season that reminds us of the importance of giving, togetherness, and gratitude. At Rite Foods, we are thankful for the continued trust of Nigerians in our brands. This season strengthens our resolve to consistently deliver quality products that bring joy to everyday moments while contributing positively to society,” Mr Adegunwa stated.

He noted that the company’s steady progress in brand acceptance, operational excellence, and responsible business practices reflects a culture of continuous improvement, innovation, and responsiveness to consumer needs. These efforts, he said, have further strengthened Rite Foods’ position as a proudly Nigerian brand with growing relevance and impact across the country.

Mr Adegunwa reaffirmed that Rite Foods will continue to invest in research and development, efficient production processes, and initiatives that support communities, while maintaining quality standards across its product portfolio.

“As the year comes to a close, Rite Foods Limited wishes Nigerians a joyful Christmas celebration and a prosperous New Year filled with peace, progress, and shared success.”

Economy

Naira Appreciates to N1,443/$1 at Official FX Market

Published

4 hours ago

25/12/2025

Adedapo Adesanya

By Adedapo Adesanya

The Naira closed the pre-Christmas trading day positive after it gained N6.61 or 0.46 per cent against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Wednesday, December 24, trading at N1,443.38/$1 compared with the previous day’s N1,449.99/$1.

Equally, the Naira appreciated against the Pound Sterling in the same market segment by N1.30 to close at N1,949.57/£1 versus Tuesday’s closing price of N1,956.03/£1 and gained N2.94 on the Euro to finish at N1,701.31/€1 compared with the preceding day’s N1,707.65/€1.

At the parallel market, the local currency maintained stability against the greenback yesterday at N1,485/$1 and also traded flat at the GTBank forex counter at N1,465/$1.

Further support came as the Central Bank of Nigeria (CBN) funded international payments with additional $150 million sales to banks and authorised dealers at the official window.

This helped eased pressure on the local currency, reflecting a steep increase in imports. Market participants saw a sequence of exchange rate swings amidst limited FX inflows.

Last week, the apex bank led the pack in terms of FX supply into the market as total inflows fell by about 50 per cent week on week from $1.46 billion in the previous week.

Foreign portfolio investors’ inflows ranked behind exporters and the CBN supply, but there was support from non-bank corporate Dollar volume.

As for the cryptocurrency market, it witnessed a slight recovery as tokens struggled to attract either risk-on enthusiasm or defensive flows.

The inertia follows a sharp reversal earlier in the quarter. A heavy selloff in October pulled Bitcoin and other coins down from record levels, leaving BTC roughly down by 30 per cent since that period and on track for its weakest quarterly performance since the second quarter of 2022. But on Wednesday, its value went up by 0.9 per cent to $87,727.35.

Further, Ripple (XRP) appreciated by 1.7 per cent to $1.87, Cardano (ADA) expanded by 1.2 per cent to $0.3602, Dogecoin (DOGE) grew by 1.1 per cent to $0.1282, Litecoin (LTC) also increased by 1.1 per cent to $76.57, Solana (SOL) soared by 1.0 per cent to $122.31, Binance Coin (BNB) rose by 0.6 per cent to $842.37, and Ethereum (ETH) added 0.3 per cent to finish at $2,938.83, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.