Nestle Nigeria Rises as Board Revalue Assets to Boost Shareholders Fund
Nestle Nigeria Plc’s market valuation surged following the company’s board of directors’ discussion with shareholder at the extra ordinary general meeting about decision to opt for asset revaluation.
The board opted for assets revaluation after negative earnings performance damaged shareholders’ funds. In 2023, Nestle Nigeria Plc shareholders’ funds printed at N78.04 billion negative as a result of huge losses.
In Nigeria, operating environment has become tense as macroeconomic indicators worsen. Naira devaluation and inflation in addition to high interest have negatively impacted the consumer sector.
“We anticipate dividends will be postponed until profits cover the deficit in retained earnings”, analysts at Cordros Capital Limited said in a note. The firm also expects the negative retained earnings balance to worsen to N170.41 billion in 2024 from N78.63 billion in 2023 and remain negative until 2025, despite projected profits
In the recent past, Nestle has seen its market valuation dropping due to strong, and rapid selloffs of stocks. Nestle is one of the few listed companies that has low shares outstanding in the local bourse.
According to information from the Nigerian Exchange, total shares outstanding is less than 793 million. Its market price settled at N900 per share on Friday. The same stock had peaked at N1,250 before switching in shareholders perceptions about the future earnings performance of the company.
Operating pressure in the business environment has been damaging enough for the company, while many of its immediate rivals in the consumer goods sector are also struggling.
A slew of equity analysts across top investment banking firms have bearish outlook on the consumer goods sector performance in 2024. Its financial scorecard showed revenue remained in an uptrend due to increase in prices of goods rather than volume growth as macroeconomic conditions impact household wallets negatively.
The company market valuation peaked at 52 week high of #1250 in a good time before falling down to as low as #795.30 over the same period.
Nestle Nigeria market value printed at #713.39 billion as market price of its shares rose following shareholders improved sentiment amidst adoption of revaluation model for preparing its financial statement.
In its post general general meeting notice, Nestle Nigeria said its Board presented the Explanatory Note on the negative net assets position of the Company to the shareholders.
The Board informed the shareholders that the Company’s negative net assets at the end of 2023 was driven by the revaluation of the foreign currency obligations.
In 2023, Nestle Nigeria grew by 22.4% over the previous year, with earnings of $547.1 billion, an increase of #100.3 billion over 2022, Board told shareholders.
They added that the company’s gross profit was $217.2 billion, representing a 39.4% increase from $155.8 billion in 2022. At the same time, operating profit grew by 41.5% to $123.7 billion, an increase of 836.3 billion over 2022 and the Company generated a positive cash flow of N48.8 billion.
Nestle Nigeria’s leadership told shareholders that cash and cash equivalents at the end of 2023 have increased by 42% from $117.9 billion to $167.8 billion. In the current market context, the Board said it is of the view that the shareholders of the company should know the fair market value of assets.
“To determine the true worth of its assets, the Company undertook an independent valuation of Land, Buildings, Plant and Machinery (PPE) as of March 16, 2024 which are capitalized in the Company’s books through a Financial Reporting Council of Nigeria certified firm of valuers, M/s Niyi Fatokun & Co”, the Board told shareholders
The Board concluded 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”, according to the notice.
The shareholders deliberated on the information provided in the Explanatory Note and noted the steps taken by the Board to protect the interest of the Company despite the challenging operating environment. But, no formal resolutions were proposed or passed. #Nestle Nigeria Rises as Board Revalue Assets to Boost Shareholders Fund
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