- Equities market: Investors lose N168bn
The Board of Directors of Nestle Nigeria Plc will meet on March 25, 2024 to discuss the way out of the financial crisis which the economic situation of the country has plunged the company into.
This information is contained in a statement dated March 19 and signed by Bode Ayeku, Company Secretary.
The food and beverage company is currently operating a negative net asset, meaning that liabilities exceed assets.
If liabilities exceed assets and the net worth is negative, the business is “insolvent” and “bankrupt”. Solvency can be measured with the debt-to-asset ratio.
Nestle recorded a loss after tax of N79.5 billion at the end of the financial year 2023 due to the heavy foreign exchange loss of N195.07 billion incurred from its operations in the review period.
In the 2022 financial year, the company reported a profit after tax of N48.97 billion while foreign exchange loss stood at N8.05 billion.
A pre-tax loss of N104.03 billion was reported in 2023 compared with a profit before tax of N71.11 billion in 2022.
The 2023 audited financial result revealed a loss per share of N100.26 compared to EPS of N61.77 in 2022FY.
Meanwhile, revenue increased by 22.4 percent y/y in 2023FY (2022FY: +27.0% y/y), underpinned by sturdy growth across the company’s Food (+30.0% y/y | 64.6% of revenue) and Beverage (+10.6% y/y | 35.4% of revenue) segments.
The strong revenue growth was attributed to the positive impact of higher pricing and resilient demand for NESTLE’s products.
On pricing, the company raised prices by c. 20.8 percent in 2023FY.
The company’s effective cost-transfer strategy resulted in a noteworthy 483bps y/y expansion in gross margin to 39.7 percent (2022FY: 34.9%) driven by the robust revenue growth (+22.4% y/y), which outpaced increases in the cost of sales (+13.4% y/y).
Analysts at Cordros Securities said, “We highlight that cost pressures in the year stemmed particularly from increased inflationary pressures on domestic food prices (2023 average: 33.93%). Consequently, EBITDA and EBIT margins printed 24.8% (+300bps y/y) and 22.6% (+305bps y/y), respectively, in 2023FY, following the stronger gross margin amid a rise in operating expenses (+37.5% y/y).”
Net finance costs (+12.9x y/y) rose markedly in 2023FY, as a significantly higher foreign exchange loss (N195.07 billion | 2022FY: N8.05 billion) influenced a 10.0x y/y increase in finance cost. Additionally, interest expense on financial liabilities surged by 203.0 percent y/y, majorly attributed to the revaluation of its foreign-denominated loans (N402.32 billion | 2022FY: N155.30 billion).
“NESTLE experienced a complete depletion of its net operating gains due to its foreign exchange exposure in loans and borrowings in the period. Amid a still challenging operating environment, we anticipate that the company will maintain its efforts to protect margins in 2024E by potentially raising prices further, leveraging its strong market leadership. Additionally, strategies such as branding, product innovation, and enhancing route-to-market channels are expected to contribute to revenue growth. However, challenges stemming from the FX illiquidity and naira devaluation will likely pressure the company’s profitability. YTD, NESTLE is down -10.0%, compared to the Consumer Goods index (+46.8%) and the broader All-Share index (+34.5%),” Cordros Securities said in a report.
Equities market wipes N168bn from investors’ pocket, index declines by 0.28%
At midweek, negative market sentiment prevailed in the equities market for the third consecutive day, leading to a 0.28 percent decline in the All-Share Index to 104,256.81 points.
Consequently, the market capitalization of listed equities also decreased by 0.28 percent, to N58.95 trillion, while year-to-date returns of the ASI dropped to 39.43 percent. This led investors to suffer a loss of N168 billion, despite more advancing stocks (29) than declining ones (24).
Among the top five decliners of the day were NSLTECH, TIP, FBNH, VITAFOAM, and
BERGER, each witnessing share price declines of -10.00 percent, -10.00 percent, -9.90 percent, -9.88 percent, and -9.80 percent, respectively. Trading activity on the NGX further declined, with total deals, volume and value plummeting by 13.62 percent, 2.73 percent, and 9.92 percent to 8,248 trades, 289.65 million units, and N6.84 billion, respectively.
Despite this, performance across the sub-sector gauges was positive, with the Insurance sector leading the gainers with a 2.09 percent increase, driven by buy interest in NEM, INTENEGINS, SOVRENINS, LASACO, and MANSARD. Following this were the Consumer Goods and Oil/Gas indexes with mild gains of 0.14 percent and 0.24 percent, respectively, fueled by INTBREW, UNILEVER, FLOURMILLS, and ETERNA.
Conversely, the Banking and Industrial Goods indices experienced declines of 1.79 percent and 0.01 percent, respectively. The top five advancing stocks for the day, including NEM, CWG, JULI, INTENEGINS, and THOMASWY, saw increases of +10.00 percent, +10.00 percent, +9.98 percent, +9.85 percent, and +9.55 percent, respectively, resulting in upward movements in their share prices. By the end of the session, FBNH led the charts in traded volume and value, with 38.76 million shares worth N1.56 billion changing hands in 730 deals.
In the money market, the Nigerian Interbank Offered Rate (NIBOR) witnessed a universal decrease across all maturities, indicating an improvement in liquidity within the system. The Overnight, 1- month, 3-month, and 6-month NIBOR each saw declines of 9.28 percent, 1.43 percent, 0.73 percent, and 1.05 [ercent. Likewise, key money market rates, including the open repo rate (OPR) and overnight lending rate (OVN), nosedived to conclude at 25.67 percent and 26.58 percent, respectively.
In the Nigerian Interbank Treasury Bills market, the Nigerian Interbank Treasury Bills True Yield (NITTY) displayed a combination of movements. The 1-month and 12-month NITTY decreased by 0.32 percent and 0.20 percent, respectively, whereas the 3-month and 6-month NITTY saw increases of 0.04% and 0.31%, correspondingly.
However, in the secondary market for Nigerian Treasury Bills, there was a positive level of activity which led to a decline in the average yield by 96bps to 16.54 percent.
In the foreign exchange market, the Naira appreciated by 4.35 percent, closing at N1, 492.61 per dollar at the official market. In the Parallel market, the Naira closed at N1, 535/$.
