Nestle Nigeria Shrinks as Huge Loss Breaks Balance Sheet
Nestle Nigeria Plc has seen its market valuation nosedived due to unimpressive earnings performance damaged by foreign exchange reform policy. The company’s balance sheet has been broken after significant earnings loss.
The food producer lost 18.2% of its market valuation as investors exited their position in the stock market as unimpressive earnings triggered negative sentiments. Its shareholders stand between fear and greed, causing selloffs that plunge its market value downward.
Now a fallen angel, the former market champion has been reduced to N713 billion, traded at N900 per share on Friday. In totality, Nestle Nigeria Plc missed out on the big bang that has lasted for about two years on the Nigerian Exchange.
In its audited results, the food producer reported a net loss of N93.1 billion due to foreign exchange revaluation losses, which amounted to N195.1 billion at the end of the period.
The consumer goods company’s revenue increased by 22.4% year on year to N547.1 billion from N446.819 billion in the comparable year in 2022. Its revenue surge was attributed to improvement in sales across food and beverage product segments.
Nestle Nigeria Plc’s profit was also negatively impacted by pressures from finance costs which grew by +1037.1%, primarily driven by a spike in interest expense on financial liabilities.
This masked 19.1% year-on-year growth in finance income. Nestle Nigeria leveraged steeply in 2023 amidst depressed macroeconomic indicators. Its borrowings increased by 159.1%, of which 38.6% were acquired from its parent company, according to analysts at CardinalStone Limited.
Consequently, the negative performance wiped out the company’s shareholders’ fund, which now stands at a negative balance of N78.0 billion.
In its equity report, Cordros Capital Limited noted that the food producer experienced a complete depletion of its net operating gains due to its foreign exchange exposure in loans and borrowings in the period.
“Amid a still challenging operating environment, we anticipate that the company will maintain its efforts to protect margins in 2024 by potentially raising prices further, leveraging its strong market leadership.
“Additionally, strategies such as branding, product innovation, and enhancing route-to-market channels are expected to contribute to revenue growth.
“However, challenges stemming from the FX illiquidity and naira devaluation will likely pressure the company’s profitability”, analysts at the firm added.
As of February 28, Nestle was trading 10% negative compared to the Consumer Goods index which had gained +46.8 % and the broader All-Share index 34.5% gain. #Nestle Nigeria Shrinks as Huge Loss Breaks Balance Sheet
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