Economy

How Forex, Tax Frustrated Nestlé Nigeria Plc in 2016

Published

8 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

Equity Market Gains 0.75% as Investors Mop up MTN, Others

Published

3 hours ago

22/01/2025

Dipo Olowookere

By Dipo Olowookere

Transactions on the floor of the Nigerian Exchange (NGX) Limited rallied on Tuesday by 0.75 per cent after investors intensified their demand for local stocks.

It was a tough battle between the bulls and the bears during the session, but the former overcame by a whisker after the bourse recorded 29 appreciating equities and 28 depreciating equities, indicating a positive market breadth index and strong investor sentiment.

The growth posted by Customs Street yesterday could be attributed to the appetite for MTN Nigeria shares, which chalked up 10.00 per cent to settle at N256.30.

SCOA Nigeria appreciated by 9.93 per cent to N2.99, Omatek grew by 9.88 per cent to 89 Kobo, Universal Insurance rose by 8.70 per cent to 75 Kobo, and CAP gained 8.52 per cent to trade at N47.75.

Conversely, Secure Electronic Technology lost 9.88 per cent to quote at 73 Kobo, Abbey Mortgage Bank declined by 9.09 per cent to N3.30, Sunu Assurances tumbled by 8.21 per cent to N6.15, Deap Capital slumped by 7.08 per cent to N1.05, and C&I Leasing depreciated by 6.82 per cent to N4.10.

A total of 440.3 million equities valued at N12.0 billion exchanged hands in 13,087 deals compared with the 1.3 billion equities worth N17.7 billion transacted in 13,891 deals on Monday, representing a decline in the trading volume, value and number of deals by 66.79 per cent, 32.20 per cent and 5.79 per cent, respectively.

Lasaco Assurance ended the session as the most traded stock after it sold 108.1 million units valued at N338.7 million, Access Holdings traded 44.0 million units for N1.1 billion, UBA exchanged 27.9 million units worth N945.7 million, Zenith Bank transacted 26.7 million units for N1.3 billion, and Universal Insurance traded 22.7 million units valued at N16.7 million.

On Tuesday, the insurance, banking and industrial goods sectors jumped by 1.03 per cent, 0.30 per cent, and 0.03 per cent, respectively, and the consumer goods and energy counters lost 0.38 per cent and 0.36 per cent apiece.

The All-Share Index (ASI) went up yesterday by 767.63 points to 103,137.99 points from 102,370.36 points and the market capitalisation increased by N472 billion to N63.333 trillion from N62.861 trillion.

Economy

Nigeria Led Africa’s Upstream Oil, Gas Investments in 2024

Published

20 hours ago

21/01/2025

Adedapo Adesanya

By Adedapo Adesanya

Nigeria ranked as Africa’s leading destination for upstream oil and gas investment in 2024, new research from market intelligence firm, Wood Mackenzie, has shown, accounting for three out of four Final Investment Decisions (FIDs) announced by global oil and gas majors, totaling $13.5 billion.

The FIDs announced within the Nigerian market included Shell’s $122 million investment in the Iseni Gas Project, TotalEnergies’ $566 million commitment to the Ubeta Gas Project and Shell’s approval of the Bonga North Tranche 1 project valued at around $5 billion.

According to the Special Adviser to President Bola Tinubu on Energy, Ms Olu Verheijen, these investments reflected Nigeria’s ongoing efforts to unlock its hydrocarbon potential through investor-friendly policies and strategic global partnerships.

Last year, Nigeria introduced several initiatives to create a conducive environment for oil and gas investors, including new tax incentives aimed at attracting up to $10 billion in natural gas investments.

Nigeria, which is Africa’s largest oil producer, also offered tax relief for gas investors, reducing corporate income tax and extending capital allowance benefits – for deepwater gas projects.

Other policies include the Presidential Directive on Local Content Compliance Requirements 2024 to address the reduction in oil and gas investments caused by high operating costs compared to global markets.

Also, the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines 2024 reduces the time spent to award contracts for oil and gas projects.

In addition to the directives, Nigeria also launched its 2024 oil and gas licensing round, offering 19 blocks for exploration, demonstrating its commitment to continued collaboration with local, regional and international partners.

Market analysts note that with this momentum, further FIDs are anticipated, including TotalEnergies’ expected $750 million commitment to the Ima Shallow Gas Project in 2025.

Economy

UBN Property Triggers 0.22% Loss at NASD OTC Exchange

Published

23 hours ago

21/01/2025

Adedapo Adesanya

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.22 per cent decline on Monday, January 20, with the market capitalisation shedding N2.35 billion to close at N1.073 trillion compared with the preceding session’s N1.075 trillion and the NASD Unlisted Security Index (NSI) going down by 6.79 points to wrap the session at 3,105.12 points compared with 3,111.91 points recorded in the previous session.

It was observed that the loss recorded on the first trading day of the week was triggered by UBN Property Plc, which crashed by 20 Kobo to trade at N2.00 per share versus last Friday’s N2.20 per share.

However, the share price of Industrial and General Insurance (IGI) Plc went up by 4 Kobo to 40 Kobo per unit from 36 Kobo per unit, it could not stop the bourse from going down at the close of transactions.

The activity chart showed that on Monday, the volume of securities traded by investors increased by 57.9 per cent to 767,610 units from the 486,215 units traded in the preceding session, while the value of shares traded yesterday slumped by 17.7 per cent to N2.3 million from the N2.8 million recorded in the preceding trading day, as the number of deals declined by 14.3 per cent to 12 deals from the 14 deals carried out in the previous trading day.

At the close of transactions, FrieslandCampina Wamco Nigeria Plc remained the most active stock by value on a year-to-date basis with the sale of 4.1 million units worth N162.9 million, followed by Geo-Fluids Plc with a turnover of 9.1 million units valued at N44.0 million, and 11 Plc with the sale of 55,358 for N14.5 million.

Also, Industrial and General Insurance (IGI) Plc closed the day as the most active stock by volume on a year-to-date basis with 25.3 million units sold for N5.9 million, Geo-Fluids Plc came next with 9.1 million units valued at N44.0 million, and FrieslandCampina Wamco Nigeria Plc with 4.1 million units worth N162.9 million.