Economy
How Forex, Tax Frustrated Nestlé Nigeria Plc in 2016
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
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By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested three price decliners to lift the NASD Over-the-Counter (OTC) Securities Exchange by 0.05 per cent on Thursday, July 16.
The securities depository company gained N2.29 during the trading day to close at N92.64 per share compared with the previous day’s price of N90.35 per share.
As a result, the market capitalisation of the bourse grew by N1.42 billion to N2.592 trillion from N2.590 trillion, while the NASD Security Index (NSI) improved by 2.36 points to 4,318.87 points from 4,316.51 points.
The three price losers yesterday were led by 11 Plc, which shed N10.00 to end at N240.00 per unit versus Wednesday’s closing value of N250.00 per unit, FrieslandCampina Wamco Nigeria Plc lost N2.34 to finish at N147.66 per share compared with the N150.00 per share it closed at midweek, and Food Concepts Plc depleted by 7 Kobo to settle at N2.42 per unit, in contrast to the preceding day’s N2.49 per unit.
A look at the activity chart showed that during the session, the value of transactions soared by 43.3 per cent to N104.1 million from the preceding session’s N65.2 million, and the number of deals jumped by 39.3 per cent to 39 deals from the 28 deals completed a day earlier, while the volume of trades contracted by 75.7 per cent to 1.2 million units from 4.8 million units.
When trading activities ended for the day, Great Nigeria Insurance (GNI) Plc led the activity chart as the most active stock by value on a year-to-date basis, with 3.4 billion units sold for N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units valued at N6.5 billion, and CSCS Plc with 74.9 million units exchanged for N5.3 billion.
GNI Plc also closed the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Adedapo Adesanya
The Naira further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Thursday, July 16, by 65 Kobo or 0.04 per cent to sell for N1,381.53/$1, in contrast to Wednesday’s closing value of N1,382.18/$1.
This was buoyed by improved FX liquidity to absorb the high demand for Dollars during the trading session.
However, the local currency depreciated against the Pound Sterling in the official market yesterday by N9.48 to close at N1,866.17/£1 versus the preceding day’s N1,856.69/£1, and lost N2.99 against the Euro to quote at N1,582.68/€1 compared with the midweek rate of N1,576.69/€1.
At the parallel market, the Nigerian currency maintained stability against its United States counterpart at N1,405/$1, and at the GTBank FX desk, it remained unchanged at N1,389/$1.
On Thursday, data from the Central Bank of Nigeria (CBN) showed a surge in interbank FX turnover and deal count. Interbank FX activities at the NFEM window increased sharply by 69 per cent to $205.366 million from $121.727 million reported the previous day.
Nigeria’s gross external reserves continue to rise, supported by steady foreign exchange inflows from hydrocarbon receipts, remittances and foreign portfolio investments, boosting market confidence. It settled at $51.893 billion from $51.867 billion the previous day.
The apex bank has also launched a new digital platform that will track every foreign exchange transaction involving Bureau De Change (BDC) operators, marking a major step in its efforts to improve transparency and strengthen oversight of Nigeria’s retail forex market.
In an operational guidance issued on July 15 to authorised dealer banks and licensed BDCs, the CBN introduced the FX BDC Purchase Tracker (FXBT), a centralised electronic portal that will monitor foreign exchange purchases by BDCs from the point of request through approval, settlement and eventual sale.
As for the crypto market, prices were down as the markets weighed fresh US airstrikes on Iran that boosted risk sentiment, with Ethereum (ETH) down by 4.7 per cent to $1,829.37.
Solana (SOL) decreased by 3.6 per cent to $77.49, Dogecoin (DOGE) depreciated by 3.1 per cent to $0.0718, Cardano (ADA) also crashed by 3.1 per cent to $0.1588, Bitcoin (BTC) slumped by 2.9 per cent to $62,820.21, Ripple (XRP) dipped by 2.6 per cent to $1.08, Binance Coin (BNB) fell by 2.3 per cent to $569.02, and TRON (TRX) shrank by 0.8 per cent to $0.3219, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Aduragbemi Omiyale
In a bid to help investors recover about N270 billion in unclaimed dividends in the capital market, a nationwide enlightenment campaign has been launched by the Securities and Exchange Commission (SEC).
This initiative involves town hall meetings that would go around the country to sensitise Nigerians on the need to claim these fallow funds.
The Director General of SEC, Mr Emomotimi Agama, speaking at a town hall meeting in Lagos, said the regulator is not happy that investors, who worked hard to purchase shares in the stock market, have not claimed their profits for many years, making unclaimed dividends pile up.
“The commission considers this situation unacceptable. Funds belonging to investors should ultimately find their way back to their rightful owners,” the SEC chief, represented at the event by the Director of Registration and Exchanges, Market Infrastructure Department, Ms Hafsat Rufai, stated.
He said during this campaign Nigerians would be informed of the unclaimed monies, the role of the National Investor Protection Fund (NIPF), and the procedures for verifying and recovering legitimate claims, stressing that SEC is committed to ensuring that investors’ funds are returned to their rightful owners.
The DG stated that unclaimed monies administered by the NIPF include return funds from public offers, scheme consideration arising from mergers, acquisitions and corporate restructuring transactions, as well as other capital market-related funds that have remained dormant.
He disclosed that the town hall meetings would be held in the six geopolitical zones and the Federal Capital Territory.
In addition, electronic and social media platforms would be used to broaden public awareness on this issue, with efforts to be made to address the transmission of securities following the death of an investor, noting that many families were either unaware that their deceased relatives owned shares or lacked knowledge of the legal and administrative procedures required to transfer such investments to rightful beneficiaries.
“As a result, valuable investments and returns on investments sometimes remain inaccessible for many years, thereby denying beneficiaries the financial benefits intended for them,” he said, urging investors to maintain proper records of their investments and encouraging families to take proactive steps to preserve inherited wealth.
