Nestle Nigeria Plc in a note to its shareholders has stated that 94% of its N195 billion FX losses pertains to “unrealized exchange losses”. Essentially, N184 billion of its FX losses are due to unmatured forex obligations.
The company ended FY 2023 with a net loss of N79.47 billion, a significant decline from the N48.97 billion profit after tax posted in 2022. The loss after tax resulted in a negative net asset of N78.04 billion for FY 2023, prompting the company to release an explanatory note to its shareholders.
What the note said
In the explanatory note seen by Nairametrics, it was noted that in 2023, Nestle reported a 22.4% revenue growth, as it posted a revenue of N547.1 billion, representing a N100.3 billion increase from the N446.8 billion posted in 2022.
The company’s gross profit also grew by 39.4% from N155.8 billion in 2022 to N217.2 billion in 2023. However, the company posted a loss after tax of N79.5 billion due to its net finance costs which hit N227.8 billion in 2023, over a 1200% increase from N16.4 billion net finance costs posted in 2022.
The increase in net finance costs was linked to the company’s foreign currency obligations, which are mostly long-term (majority of ~7 years) intergroup loans owed to the parent company. Due to the devaluation of the Naira in 2023, the loans had to be revalued at the 2023 closing rate of N907.11/$.
In the note, it was contained that since 2020, Nestle Nigeria had been receiving loans from its parent group, Nestlé S.A. to purchase raw materials and other equipment that were not available locally, in the light of FX scarcity in Nigeria. The devaluation of the Naira in 2023 caused these loans to be revalued resulting in net FX losses of N195 billion for the company.
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We have strong fundamentals
The note, which was signed by Bode Ayeku, Nestle Nigeria’s Legal Adviser, harped on the fact that the company has strong fundamentals.
It was contained in the note the company finished 2023 with a positive cash flow of N48.8 billion, while its cash and cash equivalents increased by 42% to N167.8 billion in 2023, from N117.9 billion in 2022.
It was also noted that as of December 31, 2023, the company’s investments in property, plant, and equipment had increased to N165.4 billion, from N73.3 billion as of 2018.
Also, it was highlighted that the company engaged an independent valuer who assessed the market value of its land, buildings, and plant & machineries as of March 16, 2024.
According to the valuer’s assessment, the group’s capitalized assets were determined to hold a market value of N305.4 billion, marking a significant deviation from the N91.1 billion carrying value assigned to the assets based on the historical cost model as of February 29, 2024.
- The note read, “The board is of the view that despite a very difficult operating environment, the fundamentals of the company remain strong. Going forward, the Board will continue to monitor the developments on the policy front and support the measures to address the negative net assets of the company.”
