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Nestle Nigeria Plans to Focus on Lead Brands to Boost Sales

Nestle Nigeria Plc (NESTLE), the country’s largest food company by market value, plans to spend more money on boosting output of its leading brands to increase sales in Africa’s most populous nation.

The local unit of Nestle SA (NESN), the world’s largest food company, has invested over 400 million Swiss francs ($445 million) in Nigeria since 2003, opening its second factory at the start of last year and is planning to invest a further 83 million francs this year, Chief Executive Officer Martin Woolnough said in a Feb. 26 phone interview from Lagos, the commercial capital.

“We’ve got a lot of money going into the country and that will be to do with improving capacity on our key brands,” he said.

Nestle forecast last year that it could double the size of its business within three years in Nigeria, currently its second-biggest market in Africa after South Africa. Annual sales at the time in South Africa were close to 1 billion francs compared with 550 million francs in Nigeria, according to the company.

Maggi food-seasoning products, Milo chocolate-malt drink, and Golden Morn cereal are Nestle’s best-selling products in the nation of over 160 million people and will be the focus of the expansion, Woolnough said.

Nestle Nigeria posted a 33 percent jump in full-year net income of 16.8 billion naira ($107 million) for the year end Dec. 31 2011 as revenue advanced 22 percent to 98 billion naira. The company started exporting products to other central and west African countries last year, earning about 1.7 billion naira, Woolnough said.

Tax Concessions

“Exports will continue around our region, but this year we’ll pick up more towards Angola as well,” he said.

Nestle Nigeria forecast that full-year revenue for 2012 to increase 15 percent to 113 billion naira with net income expected to be little changed from last year.

The forecast is “conservative,” Woolnough said. Nestle Nigeria’s 2011 profit benefited from tax concessions partly related to the opening of its factory.

“Nestle is very strong fundamentally,” Bunmi Njugo, a Lagos-based analyst at Stanbic IBTC Bank Plc (IBTCCB) who rates the stock as a “sell”, said in an e-mailed reply to questions. “The risk we see to its earnings is basically its huge exposure to foreign exchange volatility.”

Nestle Nigeria’s financing costs rose more than three fold to 3.2 billion naira in 2011 due to a devaluation in the currency of Africa’s biggest oil producer, Woolnough said. The company has 50 percent of its loans in naira with the rest in foreign currency.

The Central Bank of Nigeria in November lowered the midpoint of its exchange-rate band at its twice-weekly auctions to 155 naira per dollar from 150 naira as increasing imports and weaker oil prices, the source of more than 95 percent of Nigeria’s foreign income, affected the exchange rate.

Gasoline Costs

“The value of the naira has caused some impact, but that’s all managed and we have very low interest rates for our offshore financing,” Woolnough said.

An insurgency by Boko Haram, an Islamist militant group, in the northern part of the country, along with a strike over fuel subsidies at the start of the year were considered in making the forecast, he said.

A week-long general strike last month pushed President Goodluck Jonathan’s to only partially remove a fuel subsidy after after costs of gasoline more than doubled, while attacks by Boko Haram killed as many as 256 people in the northern city of Kano. Nigeria’s annual inflation accelerated to 12.6 percent in January from 10.3 percent in December.

Sub-Saharan Africa’s second-biggest economy may grow 6.3 percent this year, Bank of America Merrill Lynch said in an e- mailed report Feb. 21. That compares with last year’s growth of 7.7 percent, it said.

Raw Materials

“The consumer side is not improving if you think of that,” said Woolnough. “The good thing is we’re still in base food products, the key there, of course, would be that we’re going into everyone’s soups, stews and breakfasts everyday.”

Nestle Nigeria is now buying all of its main raw materials locally, including cocoa, soy and corn.

The company’s shares were unchanged at 400 naira at the close in Lagos and have gained 4.3 percent in the past year, compared with the 23 percent slump of the Nigerian Stock Exchange All-Share Index. (NGSEINDX)

“We’re still, roughly speaking, only around one third of the market share in the categories we operate in,” Woolnough said. “There’s huge potential still and on top of that the population growth is just staggering.”

Nigeria’s population is growing at an average annual rate of 2.5 percent, according to CIA World Factbook estimates.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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