Nestle Nigeria’s first Quarter (Q1) 2015 profit decline 51% as consumer spending weakens

Nestle Nigeria’s first quarter (Q1) 2015 net income declined by 51% as the consumer goods company struggled with a sluggish consumer spending, insecurity in the North of the country and skyrocketing borrowing cost.

The company’s profit was N2.95bn, compared with N6bn in 2014. Sales also fell by 34.40 percent to N27.55bn, from N33.bn in 2014.

Uwadiae Osadiaye, Equity Analyst at FBN said that a weak revenue growth suggests a weak consumer demand as the country prepares to go to the polls amid heightened uncertainties.

“Beyond this, it also appears that topline growth continues to be challenged by increased competition across various segments, insecurity in Northern Nigeria and lower discretionary income,” he added.

Nestle is facing what many Fast Moving Consumable Companies (FMCG) are beset by, where part subsidy removal in 2012 had affected consumer spending negatively.

Inflation has also risen for the fourth month in row to 8.5 percent in March, from 8.4 percent the previous month, according to data from the Bureau of Statistics.

The insecurity in the north has also denied the consumer products company access to parts of the country.

Furthermore, the company’s borrowing cost was up 166.90 percent to a record N2.33bn in the period under review, while total debt rose by 29.74 percent to N41.96bn.

“Earnings from firms like Nestle and Flour Mills with dollar loan exposures will be negatively impacted in the near term, due to foreign exchange losses on the loans,” said Kayode Omosebi, Equity Analyst at United Capital Plc.

Nestle did not manage direct costs well as its gross profits plunged by 18.03 percent to N12.18bn in 2015, as against N14.86bn in 2014.

In addition, Net Margin, which measures profitability and efficiency declined to 10.70 percent in 2015, compared with 17.95 percent in 2014.

Return on Equity (ROE) also went down to 7.59 percent from 16.76 percent in 2014 as macro headwinds constrained the company from using shareholders value to generate additional profits.

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