Investor Presentaiton

ANNUAL REPORT 2020 Chairman's Statement cont. Chairman's Statement Mr. Jacobs Moyo Ajekigbe, OFR Chairman 12 FrieslandCampina WAMCO Nigeria PLC Distinguished Shareholders, members of the Board of Directors, representatives of regulatory agencies, ladies and gentlemen. I am delighted to welcome you all to the 48th Annual General Meeting of our Company; and to present to you the Annual Report and Financial Statements of the Company for the year ended 31st December 2020. I will set the context by commenting briefly on the macroeconomic environment, especially as it shaped our Company's business performance in 2020. I shall also outline some of our major achievements, the challenges we face, and conclude with the outlook for 2021. Economic and Business Environment in 2020 Year 2020 has been one of severe economic downturn globally. The economic and business climate was generally unfavourable as most companies experienced severe headwinds and turbulence caused by the coronavirus pandemic which started in December 2019. By the first quarter of 2020, most economies across the globe had locked down, aggravating an already strained oil price which had been declining due to trade dynamics between Saudi Arabia and Russia. Nigeria, being an oil dependent economy, was adversely impacted by the oil price shock. The country's Gross Domestic Product (GDP), which grew by 2.3% in 2019 recorded a negative growth of 1.92% in 2020. In the course of the year, the economy slipped into recession, having been unable to recover due to the second wave of the global pandemic which slowed global recovery. Oil prices dipped to a record low affecting the Foreign Exchange Reserve which suffered a significant decline. On the domestic scene, agriculture suffered from sporadic flooding and conflicts between herders and farmers. Infrastructure deficits, weak revenue generation, and high government debts constituted significant pressure points on the economy. Foreign Exchange (FX) rates were relatively stable in Quarter 1 until the impact of the global pandemic became noticeable in Quarter 2, and through Quarter 4 when FX supply became scarce and expensive; and FX rates became unstable. The official exchange rate which was initially projected at #305/$ was adjusted to #379/$. The scarcity of FX led to increased pressure sourcing at the Investors & Exporters window, thus driving up input cost for companies whose operations depended on imports and high FX requirements. Demand stagnated due to inflationary pressure on consumer wallets. Inflation averaged at 12.9% in 2020, but closed at 15.8% in December, with the highest increase recorded in staple food items. Insecurity across the country also impacted negatively on commercial activities as rampant banditry and kidnappings for ransom restricted penetration into the hinterlands. Unemployment rate was at 27.1%. The poverty situation worsened due to lack of jobs and as a result of the general downturn in the economy. Overall, the operating environment in 2020 was extremely difficult for manufacturing companies in Nigeria. Operating Results and Performance The challenging operating environment in 2020 notwithstanding, the Company's commercial and financial performance for the year showed considerable improvement compared to the previous year. Turnover increased by 23.3% in 2020 to 199.5 billion from #161.8billion in 2019. This was due to a combined effect of organic growth and inorganic growth following the acquisition of Nutricima's dairy business. Profit Before Tax however decreased by 20.3% from #18.8 billion in 2019 to #14.9 billion in 2020 as a result of high input costs, transactional FX impact, and a one-off donation of 0.6bln to the Covid Relief Fund. FrieslandCampina WAMCO Nigeria PLC Cost of sales as a percentage of turnover increased to 79.8% in 2020 from 75.3% in 2019. This was majorly attributable to the higher input costs of dairy raw materials and transactional FX impact occasioned by Covid-19 disruptions. The Company's operating overhead to turnover ratio in 2020 reduced to 2.9% from 3.4% in 2019. This was due to cost containment measures put in place to manage the rising inflation and cost impact. Net interest cost was higher compared with the previous year's figure. This was as a result of intercompany loans obtained in 2020 to compensate for dollar scarcity in the Nigerian FX markets. Profit After Tax (PAT) for the year decreased by 29% from #12.4billion in 2019 to #8.8billion in 2020. We remodeled our Route-To-Market (RTM) distribution strategy during the Covid-19 lockdown to harness the opportunities of direct reach across all relevant channels presented by the spike in food consumption while also leveraging digital channels to enhance our RTM execution to deliver growth. The Company also continued to invest in its brands through integrated initiatives, and by optimizing market spend and increasing its focus on physical availability as dictated by the new normal. The combination of our solid brands and RTM distribution strategy has helped to hold our position in the market and deliver significant topline growth. Overall, 2020 was a good year for the Company considering the volatility and uncertainty of the business environment. The Company delivered impressive volumes during the year through its brands and superior commercial expertise. The result reflects a formidable business, which can withstand external shocks. The Company continues to be committed to nourishing Nigerians with quality dairy nutrition; and the Board and Management will continue to take necessary steps to ensure that the growth momentum is sustained. Dividend The Company continues to maintain its dividend policy of paying 75% of its PAT as dividend to its Shareholders. In line with this policy, the Board of Directors is pleased to recommend for your approval, a total dividend payout of #6.74 per #0.50 share. No interim dividend was paid during the year hence the dividend of #6.74 per #0.50 share is recommended as total dividend for your approval. If the proposed dividend is approved, the dividend less withholding tax at the appropriate rate will become payable on the day after the Annual General Meeting (AGM). Once again, the Board wishes to remind Shareholders of the drive for the implementation of electronic dividend and electronic bonus payment system in line with the directive of the Securities and Exchange Commission (SEC) to eradicate the incidence of unclaimed dividend. Shareholders are requested to complete the e-dividend/e- bonus Application form in the Annual report and submit the completed forms to the Company's Registrar, First Registrars, and Investor Services Limited. Expansion/Innovation The Company continued to commit resources to the development of its RTM operations, brands and innovation. During the year under review, the Company achieved the following: installation of an 11kv Independent Power Plant (IPP) across 3 factories to mitigate energy cost in the production process; heat extraction in the Can and Evap factories to ensure a good working environment for our staff; finalization of the centralized dumping in Powder Plant to ensure an effective and robust production process; building of seven Milk Collection Points with boreholes across Kwara, Osun, Ogun and Niger States; and construction of 20 solar-powered boreholes, porta 13