Nestlé Nigeria – Contraction in Food Giant’s Revenue

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Topline Pressured by Decline in Domestic Sales

In the first quarter of 2020, NESTLE reported a 0.90% YoY contraction in topline — the first drop since Q1:2015. The food giant’s Q2:2020 financial scorecard reveals a further moderation in topline down by 0.35% YoY to NGN70.70bn.

We reiterate that NESTLE’s topline growth has increasingly slowed since Q1:2019 (+5.19% YoY, +4.59% YoY, and +2.36% YoY in Q1, Q2 and Q3:2019 respectively) bucking the trend of double-digit growth, although it picked up in Q4:2019 \+15.12% You.

This, as well as the steady decline [-1.29% and -1.14% in Q1 and Q2:2020 respectively) in domestic sales (which typically accounts for 98.5% of overall revenue), leads us to believe that the increasing strain on consumer wallets continues to bite into the company’s sales.

As a positive, however, we note that export sales continued to grow [+25.81% YoY in Q1, and +48.60% YoY in Q2:2020), providing some respite to sales. For Q2:2020, the pickup in export sales is particularly impressive, when juxtaposed with the sustained land border closure and distribution challenges ushered in by the pandemic.

Financial Highlights (NGN billion) NESTLE PLC Q1:2020 Unaudited Results

Nestlé Nigeria - Contraction in Food Giant’s Revenue
Meristem Securities Limited

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In all, H1:2020 revenue settled at NGN141.03bn, 62bps lower than in the corresponding period in 2019. Although we consider the waning disposable income of consumers, a key downside risk, we expect the broad uptick in economic activities to bode well for the company’s overall performance in H2:2020. Thus, we retain our projection of a 7.28% growth in 2020FY revenue to NGN304.71bn from NGN284.04bn in 2019FY.

Gross Margin Buckles Under Pressure

Despite the slowdown in revenue, cost of sales was up 14.2% in Q2:2020, overturning the 2.09% drop preceding quarter. As a result, the cost of sales climbed to NGN80.19bn in H1:2020, precipitating a decline in gross margin to 43.14% (vs. 46.57% in H1:2019).

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OPEX also rose by 3.37% to NGN26.51bn, fueled solely by a 50.68% surge in admin expenses, which offset the fall in marketing and distribution costs (- 6.34%). This brought operating profit down 15.10% YoY to NGN34.33bn in H1:2020.

Although interest-bearing liabilities rose to NGN6.62bn during the period, finance costs pegged lower at NGN937.36mn (vs. NGN2.27bn as at 2019FY when interest-bearing liabilities stood at NGN13.21bn). PBT, thus, came in at NGN33.86bn, a 16.26% decline from H1:2019 levels.

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A slight increase in the effective tax rate to 35.55% (vs. 35.09% in H1:2019) further weighed on bottom-line, resulting in a 16.84% decline to NGN21.83bn (vs. NGN26.25bn in H1:2019), implying a net margin of 15.48% from 18.50% in H1:2019.

While we expect direct and operating costs to remain elevated for the rest of the year, our earnings outlook rests largely on our topline projection. Ultimately, we forecast a 5.18% growth in 2020FY net income to NGN48.05bn, from NGN45.68bn in 2019FY.

ROE Remains Attractive

At the end of H1:2020, NESTLE’s annualized ROE stood at 106.43% – 11.03 percentage points higher than 95.39% in 2019FY. This was propped by the spike in financial leverage to 6.11x (vs. 4.24x as at 2019FY). In contrast, however, we observed a decline in annualized ROA to 23.11% vs. 25.69% as at 2019FY, owing to a decline in profitability between both periods.

Outlook and Recommendation

We maintain our 2020FY target price of NGN1200 on the back of an Expected EPS of NGN60.00 and a target P/E of 20.00x. This represents an upside potential of 2.13% to its closing price of NGN1,175 on August 13’^, 2020. Hence, we rate NESTLE a HOLD.

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Meristem Securities Limited

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Latest News

Spackman Entertainment Group’s Upcoming Musical Film THE BOX, Starring EXO’s Chanyeol, Scheduled To Be Released In The Spring Of 2021

  • Following the art film STONE SKIPPING, THE BOX is the next film production of the Company's wholly‐owned indirect subsidiary, Studio Take, founded by veteran movie producer, Mr. Song Dae‐chan
  • THE BOX will be EXO's Chanyeol's first lead acting role in a film
  • Directed by Yang Jung Woong, the Executive Producer of the 2018 PyeongChang Winter Olympics opening and closing ceremonies, THE BOX is set to be screened in Korea in the spring of 2021

SINGAPORE - Media OutReach - 3 March 2021 - Spackman Entertainment Group Limited ("Spackman Entertainment Group" or the "Company" and together with its subsidiaries, the "Group"), one of Korea's leading entertainment production groups, wishes to announce that its upcoming musical film THE BOX, produced by the Company's indirect wholly-owned subsidiary, Studio Take Co., Ltd. ("Studio Take"), is set to be released in Korea in the spring of 2021.


Following the art film STONE SKIPPING, THE BOX is the next film production of Studio Take, which was founded by veteran movie producer, Mr. Song Dae‐chan.

THE BOX is about the musical journey of an aspiring singer and a once popular producer.

Directed by Yang Jung Woong, the Executive Producer of the 2018 PyeongChang Winter Olympics opening and closing ceremonies, THE BOX stars EXO's Chanyeol who plays the aspiring singer and Jo Dal Hwan who acts as the once popular producer. This is Chanyeol's first lead role for a Korean commercial film. Jo Dal Hwan is known for his role in SECRET HEALER (2016), TRAFFICKERS (2012) and THE CON ARTISTS (2014).


About Spackman Entertainment Group Limited

Spackman Entertainment Group Limited ("SEGL" or the "Company"), and together with its subsidiaries, (the "Group"), founded in 2011 by Charles Spackman, is one of Korea's leading entertainment production groups. SEGL is primarily engaged in the independent development, production, presentation, and financing of theatrical motion pictures in Korea. According to Variety, Korea was the world's fourth largest box office market in 2019, behind only North America, China and Japan.

Read Also:  Despite Marginal Uptick in PAT, NESTLE Pay-Out 78.08% OF EPS


The Group also invests into and produces Korean television dramas. In addition to our content business, we also own equity stakes in entertainment-related companies and film funds that can financially and strategically complement our existing core operations. SEGL is listed on the Catalist of the Singapore Exchange Securities Trading Limited under the ticker 40E.

Production Labels

SEGL's wholly-owned Zip Cinema Co., Ltd. ("Zip Cinema") is one of the most recognised film production labels in Korea and has originated and produced some of Korea's most commercially successful theatrical films, consecutively producing 10 profitable movies since 2009 representing an industry leading track record. Recent theatrical releases of Zip Cinema's motion pictures include some of Korea's highest grossing and award-winning films such as CRAZY ROMANCE (2019), DEFAULT (2018), MASTER (2016), THE PRIESTS (2015), COLD EYES (2013), and ALL ABOUT MY WIFE (2012). For more information on Zip Cinema, do visit http://zipcine.com


SEGL also owns Novus Mediacorp Co., Ltd. ("Novus Mediacorp"), an investor, presenter, and/or post-theatrical distributor for a total of 79 films (58 Korean and 21 foreign) including ROSE OF BETRAYAL, THE OUTLAWS and SECRETLY, GREATLY, which was one of the biggest box office hits of 2013 starring Kim Soo-hyun of MY LOVE FROM THE STARS, as well as FRIEND 2: THE GREAT LEGACY. In 2012, Novus Mediacorp was also the post-theatrical rights distributor of ALL ABOUT MY WIFE, a top-grossing romantic comedy produced by Zip Cinema. In 2018, THE OUTLAWS, co-presented by Novus Mediacorp broke the all-time highest Video On Demand ("VOD") sales records in Korea. For more information on Novus Mediacorp, do visit http://novusmediacorp.com.


The Company owns a 100% equity interest in Simplex Films Limited ("Simplex Films") which is an early stage film production firm. The maiden film of Simplex Films, JESTERS: THE GAME CHANGERS (2019), was released in Korea on 21 August 2019. Simplex Films has several line-up of films including A BOLT FROM THE BLUE (working title).


The Company owns a 100% equity interest in Take Pictures Pte. Ltd. ("Take Pictures") which produced STONE SKIPPING (2020) and shall release THE BOX and GUARDIAN (working title) in 2021 tentatively.


The Company owns a 100% equity interest in Greenlight Content Limited ("Greenlight Content") which is mainly involved in the business of investing into dramas and movies, as well as providing consulting services for the production of Korean content. Through the acquisition of Greenlight Content, the Group's first co-produced drama, MY SECRET TERRIUS, starring top Korean star, So Ji Sub, achieved #1 in drama viewership ratings for its time slot and recorded double digits for its highest viewership ratings. Greenlight Content was one of the main investors of MY SECRET TERRIUS.


The Company owns a 20% equity interest in The Makers Studio Co. Ltd., which plans to produce and release four upcoming films, the first of which will be THE ISLAND OF THE GHOST'S WAIL, a comedy horror film.


Our films are theatrically distributed and released in Korea and overseas markets, as well as for subsequent post-theatrical worldwide release in other forms of media, including online streaming, cable TV, broadcast TV, IPTV, video-on-demand, and home video/DVD, etc. We release all of our motion pictures into wide-theatrical exhibition initially in Korea, and then in overseas and ancillary markets.

Talent Representation

The Company holds an effective shareholding interest of 43.88% in Spackman Media Group Limited ("SMGL"). SMGL, a company incorporated in Hong Kong, together with its subsidiaries, is collectively one of the largest entertainment talent agencies in Korea in terms of the number of artists under management, including some of the top names in the Korean entertainment industry. SMGL operates its talent management business through renowned agencies such as MSteam Entertainment Co., Ltd. (Son Ye-jin, Lee Min-jung, Ko Sung-hee), UAA&CO Inc. (Song Hye-kyo, Yoo Ah-in, Park Hyung-sik), Fiftyone K Inc. (So Ji Sub, Ok Taec-yeon), SBD Entertainment Inc. (Son Suk-ku), and Kook Entertainment Co., Ltd. (Kim Sang-kyung, Kim Ji-young). Through these full-service talent agencies in Korea, SMGL represents and guides the professional careers of a leading roster of award-winning actors/actresses in the practice areas of motion pictures, television, commercial endorsements, and branded entertainment. SMGL leverages its unparalleled portfolio of artists as a platform to develop, produce, finance and own the highest quality of entertainment content projects, including theatrical motion pictures, variety shows and TV dramas. This platform also creates and derives opportunities for SMGL to make strategic investments in development stage businesses that can collaborate with SMGL artists. SMGL is an associated company of the Company.


The Company owns a 100% equity interest in Constellation Agency Pte. Ltd. ("Constellation Agency"). Constellation Agency, which owns The P Factory Co., Ltd. ("The P Factory") and Platform Media Group Co., Ltd. ("PMG"), is primarily involved in the business of overseas agency for Korean artists venturing into the overseas market. The P Factory is an innovative marketing solutions provider specializing in event and branded content production. PMG is a talent management agency which represents and manages the careers of major artists in film, television, commercial endorsements and branded entertainment.

Strategic Businesses

The Company owns a 100% equity interest in Frame Pictures Co., Ltd. ("Frame Pictures"). Frame Pictures is a leader in the movie/drama equipment leasing business in Korea. Established in 2014, Frame Pictures has worked with over 25 top directors and provided the camera and lighting equipment for some of Korea's most notable drama and movie projects including ITAEWON CLASS (2020), HOW TO BUY A FRIEND (2020), KIM JI-YOUNG, BORN 1982 (2019), FOUR MEN (2019) and ASADAL CHRONICLES (2019).

We also operate a café-lounge called Upper West, in the Gangnam district of Seoul and own a professional photography studio, noon pictures Co., Ltd.

For more details, do visit http://www.spackmanentertainmentgroup.com/

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