Connect with us

Markets

Nestle Nigeria Sees Margins Pressured as Inflation Weighs

Published

on

Nestle

Nestle Nigeria Plc, a unit of the world’s biggest food company, will struggle to maintain profit-margin growth in 2016 as the highest inflation in nearly 11 years and a lack of foreign currency stalls the economy in Africa’s most populous country.

“We haven’t seen the bottom” of the downturn, Chief Executive Officer Dharnesh Gordhon, 51, said in an interview in the commercial capital, Lagos, on Aug. 10. A shortage of dollars has made it difficult to import raw materials, he said.

Nestle Nigeria, about 64 percent owned by Vevey, Switzerland-based Nestle SA, is seeking to use its market-leading position in the country to ride out an economic contraction of 1.8 percent this year, Nigeria’s first recession in three decades.

The country, which vies with Angola as Africa’s biggest oil producer, has seen income plunge after the price of oil, which accounts for about 70 percent of government revenue, fell more than 50 percent over the past two years. Inflation accelerated to an annual rate of 16.5 percent in June.

The profit “margin is under pressure” as the company can’t pass all cost increases onto the consumer, Gordhon said.

While the Central Bank of Nigeria seeks to support the naira with currency controls, companies are finding dollar supply unpredictable, according to Gordhon. His company can go for as long as three weeks without being able to source dollars, he said.

“I wish there was a consistent pattern that you can plan with,” the CEO said.

Nestle Nigeria, which makes Maggi cube seasoning and Milo cocoa, is counting on an expanding middle class in the country and across Africa to increase and sustain demand for its packaged foods, the CEO said. It exports Maggi cubes to other African countries and to Europe, mainly to Nigerians living in those countries. While revenue grew 22 percent to 80.4 billion naira ($247 million) during the six months ending June 30 from the same period a year earlier, costs rose 28 percent, to 47.7 billion naira, Nestle Nigeria’s financial statement shows. Its Swiss parent company reports first-half earnings on Thursday.

“The Nigerian business for us is one of the best in Africa and it continues to grow,” Gordhon said. “We’ve had a compound annual growth of over 10 percent over the last five years. We’ve doubled the business in four years.”

With 92 percent of what the company sells produced locally, Nestle has an advantage over rivals that rely on imports, the CEO said. Rivals include Cadbury Nigeria Plc, Unilever Nigeria Plc and imported brands of packaged food.

‘Resilient Economy’

“What I see is that there will be few players and this gives us the opportunity to solidify our market position,” Gordhon said. “The market is shrinking in terms of total size of category, but our share is increasing.”

Nigeria’s economic downturn is likely to bottom out by the end of this year, with a turnaround set to begin next year, according to Gordhon. The naira has weakened 38 percent against the dollar since the central bank in June dropped a 16-month peg against the U.S. currency. The naira strengthened 0.9 percent to 321.25 by 6:49 a.m. in Lagos on Wednesday.

“Nigeria is an extremely resilient economy,” he said. “People have gone through worse things in this country. What you need is constancy of economic policy or monetary policy. If you get those things, businesses can adjust. ”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Continue Reading
Comments

Gold

Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal

Published

on

gold bars - Investors King

Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.

Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.

While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.

“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.

“Gold remains an yield story and that yield story is very much tied back to the tapering story.”

A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.

“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.

A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.

Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.

Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.

Silver rose 0.9% to $22.61 per ounce.

Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.

Continue Reading

Crude Oil

Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints

Published

on

Brent crude oil - Investors King

Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.

Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.

“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.

Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.

Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.

China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.

India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.

Continue Reading

Crude Oil

Oil Holds Near Highest Since 2018 With Global Markets Tightening

Published

on

Crude Oil - Investors King

Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.

Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.

Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.

At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.

Continue Reading




Advertisement
Advertisement
Advertisement

Trending