Nigeria Exit Fears: Nestle Nigeria's Financial Woes Spark Worries Among Investors

Nestle Nigeria Plc has encountered a significant financial setback, reporting a loss before tax of N104 billion for the fiscal year 2023, a stark contrast to the N71 billion profit recorded during the same period in 2022. The company's 2023 financial statement, disclosed on the NGX on February 28, 2024, unveiled a foreign exchange loss of N195 billion as the primary driver behind the substantial overall loss.

This forex deficit has not only led to the reported loss but has also resulted in the depletion of Nestle Nigeria's shareholder funds, now standing at a negative N78 billion, a drastic decline from the N30.2 billion reported a year earlier. The company finds itself in a situation where its liabilities surpass its assets, rendering it unable to pay dividends based on the current status of its shareholder funds.

Despite a notable increase in revenue, reaching N547.1 billion compared to N446.8 billion the previous year, Nestle Nigeria faces challenges in its financial structure. The gross profit rose to N217.7 billion, reflecting a 39.8% YoY increase, while operating profit also showed a positive trend at N123.7 billion, up by 41.5% YoY.

However, the soaring net finance cost at -N227.8 billion, a staggering surge from N16.3 billion in 2022, contributed to the overall pre-tax loss of N104 billion, compared to the pre-tax profit of N71.1 billion reported the previous year. The company also posted a loss after tax of N79.4 billion, a stark contrast to the profit after tax of N48.9 billion in 2022.

In light of these financial challenges, Nestle Nigeria acknowledges the impact on its going concern status. The company attributes the net loss to the significant devaluation of the naira but expresses optimism that as the macroeconomic situation stabilizes, positive impacts on the overall economy and company results will follow. Nestle has implemented robust margin and cost management initiatives to address forex volatility and cost inflation.

Despite the negative shareholder funds, Nestle Nigeria is expected to raise capital, estimated to be over N100 billion, to secure its going concern status. The company remains cash flow positive, reporting a net cash flow of N49 billion. Amid economic challenges, Nestle Nigeria has invested N61 billion in expanding its factory lines and enhancing distribution center operations. Additionally, the company launched five new products and entered the realm of affordable plant-based nutrition through NIDO Soya.