In a communication to its shareholders, Nestle Nigeria Plc disclosed that a substantial portion, 94%, of its N195 billion foreign exchange (FX) losses comprises “unrealized exchange losses.” Specifically, N184 billion of the FX losses stem from unmatured forex obligations.
The company concluded the fiscal year 2023 with a notable net loss of N79.47 billion, marking a significant downturn from the N48.97 billion profit after tax recorded in 2022. This loss resulted in a negative net asset of N78.04 billion for FY 2023, prompting Nestle to issue an explanatory note to its shareholders.
Key Points from the Note
According to the explanatory note obtained by Nairametrics, Nestle reported a substantial 22.4% revenue growth in 2023, reaching a revenue of N547.1 billion, reflecting a N100.3 billion increase from N446.8 billion in 2022.
The company’s gross profit also witnessed a notable uptick of 39.4%, rising from N155.8 billion in 2022 to N217.2 billion in 2023. However, Nestle incurred a loss after tax of N79.5 billion primarily due to escalated net finance costs, which surged to N227.8 billion in 2023, marking a staggering 1200% increase from N16.4 billion net finance costs in 2022.
The surge in net finance costs was attributed to the company’s foreign currency obligations, predominantly long-term intergroup loans owed to the parent company. These loans had to be revalued at the 2023 closing rate of N907.11/$ due to the Naira devaluation in 2023.
Since 2020, Nestle Nigeria has received loans from its parent group, Nestlé S.A., to procure raw materials and equipment unavailable locally, amidst FX scarcity in Nigeria. The devaluation of the Naira in 2023 resulted in the revaluation of these loans, leading to net FX losses of N195 billion for the company.
Assurance of Strong Fundamentals
The note, signed by Bode Ayeku, Nestle Nigeria’s Legal Adviser, reiterated the company’s robust fundamentals despite the challenging operating environment.
It highlighted that Nestle concluded 2023 with a positive cash flow of N48.8 billion, with cash and cash equivalents increasing by 42% to N167.8 billion in 2023 from N117.9 billion in 2022.
Furthermore, the company’s property, plant, and equipment investments surged to N165.4 billion by December 31, 2023, from N73.3 billion in 2018.
An independent valuer assessed Nestle’s assets’ market value as of March 16, 2024, determining a market value of N305.4 billion for the group’s capitalized assets. This was significantly deviating from the N91.1 billion carrying value assigned based on the historical cost model by February 29, 2024.
The note concluded with the Board’s affirmation of Nestle’s strong fundamentals amid a challenging operating environment. The board also committed to monitoring policy developments and supporting measures addressing the company’s negative net assets.
