The first thing I noticed whilst looking at the financial statements was that there were no restatements. This is good as it makes comparability easier and there is no wondering why there was a change of accounting method.
It is interesting to see the shareholder representations. As previously mentioned Nestle S.A, Switzerland now holds 63.48% or 503,177,098 shares. There a total of 29,101 shareholders of which just over 60% own only between 1-1,000 shares. In fact 86% of shareholders only own a combined total of just under 3% of the shares in the company. I am not sure how this compares to other companies but it is an interesting look at the wealth distribution of one of the biggest companies in Nigeria.
The company has recorded consistent growth in revenue however the operating profit has not maintained the same growth. In fact profit after tax has somewhat stagnated over the last 3 years. This would mean the growth in the costs of business has exceeded the growth in revenue. I wonder what the cause of this is and whether it is expected to continue into the future. Looking through the income statement I can see marketing and distribution costs and finance costs seem to be the major contributors.
I wonder what might be the cause of these rises. I can see there are notes attached to the finance costs and in 2014 there was a much larger net foreign exchange loss than previously. This makes sense as in the chairman's statement there is a discussion about the economic environment within Nigeria. Although the country has experienced continual GDP growth, declining oil prices amongst other factors led to a devaluation of the Naira which is the national currency. The uncertainty surrounding the global market and the resources sector may continue to have an influence over the company's results.
It's hard to tell what the cause of the increase in marketing and distribution is as it only appears in the notes of the 2014 financial statements. There does seem a large increase of around 60% in sales promotion expenses. Why is this so? Is there increased competition? If so, what impact will this have on future revenue or the costs of future promotions?
Looking further into the statements and another area of concern develops. The current ratio of the company is less than 1. This means the company does not have enough current assets to cover their current liabilities. In fact cash and cash equivalents dropped from 13,716,503 thousand Naira to 3,704,505 Naira. This is very concerning, I wonder why this is. The notes contain a lot of information surrounding liquidity risk and credit risk among others. IT is a bit confusing but definitely something that would require deeper investigation.
Looking further into the cash situation I note dividends paid have almost tripled over the last 3 years, borrowings has increased and investments has decreased? Why has the dividends paid increased so dramatically? Cash spent on investments may have decreased as they had just finished their upgrades or new facilities which would not be a bad thing. However it may have decreased as they have looked to make savings which if this was the case would not be good as without investments the future may be bleak. Is the company financing its activities with too much debt? Is this the reason cash is down? Although many these are just a few of the questions raised in my head after looking at the cash and cash equivalents of the company.
A more in depth look at the statement might provide more questions as well of some of the answers. I never knew annual reports and more particular financial statements could be so interesting. That may sound a little nerdy but even after a brief look at I want to know so much more about them. I want to understand what the numbers mean and the business reality they are trying to convey.
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