Naira devaluation in Nigeria hits Nestlé hard

NIGERIA – Nestlé Nigeria is grappling with severe financial challenges, despite recording significant revenue growth. 

The company’s latest financial report for the first nine months of 2024 reveals a pre-tax loss of ₦255 billion, a staggering 381% increase from the ₦56.65 billion loss reported in the same period last year. 

This marks a further decline for the agri-food giant, which had already posted a ₦104 billion loss in 2023, following a ₦71 billion profit in 2022.

The revenue figures paint a contrasting picture. Sales rose by 22% to ₦547 billion in 2023 and continued their upward trajectory, reaching ₦665 billion by the end of September 2024. 

Over the last five years, Nestlé Nigeria’s sales have grown at a compound annual rate of 18%, with gross and operating profits increasing by 14% and 14.5%, respectively. 

These metrics highlight the underlying strength of its business operations, but soaring financial costs have eclipsed these gains.

Interest expenses on financial liabilities surged by 188% in 2024, totaling ₦83.866 billion, largely driven by a sharp increase in interest payments on inter-company loans, which tripled to ₦73.3 billion from ₦27.3 billion in 2023. 

Additionally, foreign exchange losses tied to foreign currency balances amounted to ₦285 billion, representing a 124% year-on-year rise, as the devaluation of the naira wreaked havoc on the company’s financial health.

Wassim Elhusseini, CEO of Nestlé Nigeria, attributed the company’s losses primarily to the naira’s devaluation and its impact on foreign currency liabilities. 

“Net profit and equity are mainly affected by high finance costs, a direct result of the revaluation of the company’s foreign currency liabilities,” he explained. 

Elhusseini noted that without these finance costs, the company’s net profit would have benefited from improvements in gross and operating margins.

In response, Nestlé Nigeria is implementing measures to enhance operational efficiency, innovate, and reduce dependency on foreign exchange. 

This includes increased local sourcing of raw materials. However, rising sales costs, which surged by 118% to ₦179 billion in the third quarter, continue to erode operating margins, limiting the effectiveness of these initiatives.

Debt remains a pressing issue. The company’s total debt stands at ₦685 billion, while its shareholders’ equity is now negative, at ₦112 billion, with accumulated losses of ₦262.9 billion.

To mitigate this, Nestlé Nigeria revalued its real estate and industrial assets in March 2024, adding a revaluation gain of ₦150 billion to its financial statements. However, this move provides only a temporary buffer.

To regain financial stability, Nestlé Nigeria may need to pursue capital restructuring, including a potential capital increase and more aggressive debt management. Once a consistent dividend payer, the company has halted payouts since 2023, dampening investor confidence.

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