March 5, 2018/Cordros Capital

•Revenue of NGN244.2bn reported was 34% higher vs. 2016FY, but slightly below consensus NGN245.9bn

•EBITDA of NGN62.18bn was 41% higher vs. 2016FY, and well-above consensus NGN58.5bn

•Finance charges dropped by 27.6% to NGN15.1bn

•PAT was NGN33.7bn, 326% higher vs. 2016FY, and above consensus NGN29.9bn 

•Compared to our estimates, revenue and EBITDA trailed by 4% and 7% respectively while PAT beat by 9%

•Final dividend of NGN27.5 was declared, equating to NGN42.5 for the year (vs. our estimate of NGN38.2) and 3% yield on last closing price

•For Q4-17, though revenue was higher by 12.4% y/y, it declined 7% q/q, suggesting possible lower sales volume. Compared to our estimate, sales revenue was down 14%

•Gross margin in Q4-17 was 42.4%, -219 bps y/y and -107 bps q/q, and in line with our estimate

•Opex grew 17% y/y and 11% q/q. The reported 21% ratio to sales is consistent with our estimate, and is greater than the 20% reported in Q4-16 and 9M-17 average of 17.7%

•EBIT margin of 21% was lower 309 bps y/y and 447 bps q/q

•The surprising declines in finance income (-102% y/y and 104% q/q) and finance charges (120% y/y and 97% q/q) are noteworthy. Net forex loss in Q4 was NGN20 million – the lowest recorded during the year

•While PBT fell 23% y/y (+23% q/q), PAT grew 44% y/y (67% q/q) on significantly lower effective tax rate of 13% (vs. 54% in Q4-16 and 36% in Q3-17)

Overall, NESTLE’s 2017FY result is impressive. We note however, the lower-than-expected sales in Q4 as a negative surprise. Our estimates are under review.