TheCable

Nestle Nigeria is headed for the lowest growth in both revenue and profit in five years this year based on the growth rate in the third quarter. The company has maintained a stable growth in sales revenue in the past five years at an average annual growth of 19.4%. It is doing well below the average this year. Current projections indicate that revenue growth may drop to as low as 5.6%, the lowest in many years.

Profit performance is indicating even greater weakness for the food and beverage company. The company recorded a sharp deceleration in profit last year, which has been reinforced this year. It closed third quarter operations with a marginal decline in profit, which is a reflection of inability to improve profit margin in a slowly growing sales revenue situation.

Mr. Dharnesh Gordhon, the new chief executive officer of Nestle Nigeria, will need to lead the company to a new growth momentum strong enough to get earnings charts pointing up once again. The South African, who has held several commercial roles for Nestle in South Africa and Malaysia, is expected to add his international experience to the wide product portfolio and strong brands Nestle in Nigeria to grow value for shareholders. Already, government has given him two areas where he can drive growth: soybeans production, where the minister of agriculture is targeting one million metric tonnes annually and high energy foods, which are presently being imported and quite expensive.

The company generated sales revenue of N102.66 billion in the third quarter, which is a moderate increase of 7.6% year-on-year. With seasonal sales in the final quarter, turnover is projected at N140.5 billion for Nestle Nigeria in 2014. That will be an increase of 5.6% over the full year sales revenue of N13.08 billion the company posted in 2013. This will be a major slow down from the increase of 14% in turnover the company recorded last year and a sustaining deceleration from the five-year peak growth of 22.3% in 2011.

After tax profit amounted to N16.86 billion for Nestle Nigeria at the end of the third quarter, which is a decline of 1.4% year-on-year. Full year after tax profit is projected at N23.2 billion for Nestle Nigeria in 2014, which will be an improvement of 4.2% over the net profit figure of N22.26 billion in 2013. The company’s profit growth rate fell from a preceding four year annual average of 29.3% to 5.3% last year and a further slowdown is indicated this year.

Profit performance weakness is reflecting rising operating costs. All the main cost lines grew ahead of turnover at the end of the third quarter and therefore claimed increased proportions of sales revenue. Administrative expense is leading the cost increases this year with an increase of 15.3% year-on-year at the end of the third quarter, twice the increase of 7.6% in sales revenue.

Interest cost follows with an increase of 12.5% to N2.21 billion over the same period. The company’s short-term borrowings have soared from N948 million at the end of last year to N10 billion at the end of September this year. Long-term debts have also increased further to N27.35 billion over the same period.

Distribution/selling expenses also grew ahead of turnover at 11% and so did cost of sales, which increased by 8.6%. Gross profit margin therefore slipped from 43.7% in the third quarter of last year to 43% this year. Net profit margin is also down from 17.9% to 16.4% over the review period.

The company earned N21.26 per share at the end of the third quarter and the full year expectation is N29.25 for Nestle Nigeria in 2014. The company earned N28.07 per share at the end of 2013 and paid a total cash dividend of N24.0 per share. It has declared an interim dividend of N10 per share for shareholders on the company’s register at the close of business on 21^st November while payment date is 8th December 2014.