Nestle reports lowest profit growth in four years
Nestle Nigeria finished the 2013 operations with a bigger revenue than projected but also with a lower profit than expected. Full year revenue still represents a slowdown from the preceding year and profit growth is considerably lower than any time in the past four year years.
While sales revenue accelerated for the food & beverages company in the final quarter, profit growth slowed down during the period. The result is a loss of profit margin in the year from the peak record in 2012. The company had gained profit margin every year for the preceding three years.
Seasonal sales in the final quarter enabled the company to step up turnover from N95.42 billion in the third quarter to N133.08 billion at full year. This is slightly ahead of our forecast turnover of N128.2 billion for the company in 2013. Year-on-year, sales revenue grew by 14% from the N116.71 billion the company earned in the preceding year. This is however a slowdown from the growth rate of 19.1% the company achieved in 2012.
After tax profit, on the other hand, slowed down from the third quarter figure of N17.10 billion to about N22.26 billion at full year. This is slightly below our forecast net profit of N23.5 billion based on the third quarter growth rate. Profit failed to grow as rapidly as revenue in the final quarter.
The profit figure for the year represents an improvement of 5.3% over the 2012 figure. This is a considerable slowdown in the growth rate from the growth rate of 28.1% achieved in the preceding year. The company had raised after tax profit by 30.9% in 2011, 28.9% in 2010 and 17.4% in 2009.
Loss of profit margin explains the relative profit weakness in 2013. Profit margin went down from 17.9% in the third quarter to 16.7% at full year. This is against the peak net profit margin of 18.1% the company recorded at the end of the preceding year.
Three major cost elements accounted for the decline in profit margin in the year. These are distribution & marketing expenses, finances costs and cost of sales. Distribution & marketing expenses grew ahead of sales revenue at 21.6% to N22.93 billion in the year compared to the increase of 14% in sales revenue. This means the company spent more money to generate a naira of sales in 2013 than it did in 2012. This seems to be a response to increased competition in the business in a situation of weak consumer spending capacity.
Interest expenses also rose ahead of sales revenue at 16.2% to N2.15 billion. The company runs on a significant level of borrowings. Long-term debts increased by 12.4% in 2013 to N26.47 billion but short-term borrowings dropped by close to 73% to N948 million.
Cost of sales is the third leg of the cost increases that depressed profit margin in 2013. It rose slightly ahead of sales revenue at almost 15% to N76.3 billion. That caused gross profit to grow at a lower rate than sales revenue at 13.2% to N56.97 billion. Gross profit margin therefore declined slightly to 42.6% over the review period.
In addition to rising costs, there was also a revenue disappointment that affected the bottom line. That was investment income, which fell by 60.3% to N361 million during the year.
Major developments in the company's balance sheet in the year include an increase of about 33% in trade and other receivables, an increase of 12.2% in inventories and a sharp rise of 260% in cash and bank balances to N13.72 billion. Trade and other payables grew by 53% to N29.07 billion in the year.
The company achieved a significant improvement in cash flow during the year. Net cash flow generated from operating activities increased by 19.7% to N36.21 billion. This was more than sufficient to meet cash requirements for investing and financing activities, leaving a net increase of over N9.9 billion in cash flow.
The company earned N28.07 per share in 2013, improving from N26.65 in the preceding year. It has proposed a final dividend of N24 per share for its 2013 operations, having paid an interim dividend of N1.50 per share during the year. Its total dividend of N25.50 per share represents a pay-out of about 91% and a dividend yield of 2.3%.
The company's register will close on 23rd April 2014 and payment is expected to follow the company's annual general meeting on 12th May 2014. Net assets per share has improved from N43.10 in 2012 to N58.70 in 2013.