Fresh N192bn Foreign Exchange Loss In Q1 Compounds Nestlé Nigeria’s Loss, Retained Deficit

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Nestlé Nigeria Plc incurred additional net foreign exchange losses of N191.6 billion in the first quarter, up from the N195 billion exchange losses last year that eroded the company’s equity base.

The foreign exchange losses in the first quarter multiplied the company’s full-year net loss of N79 billion in 2023 close to twice, to N142.7 billion within the three months of the quarter.

Also, accumulated losses of N78.6 billion at the end of 2023 swelled close to threefold to over N221 billion at the end of the first quarter. A fixed asset revaluation surplus of N150 billion, however, saved shareholders’ funds from a further negative plunge.

The interim financial report of the food and beverage manufacturing firm for the first quarter ended March 2024 shows the weakening of operating activities that provided a reasonable level of stability last year, marking weaknesses for the company from the top to the bottom lines.

So far this year, Nestle Nigeria has not experienced the favourable combination of an increase in sales and a slowdown in the cost of production seen last year. This has added to the pressure from continuing foreign exchange losses.

Nestle Nigeria’s strength last year was that operating activities maintained stable growth while foreign exchange losses improved operating results.

This year, the strength in operating activities has been lost. At the same time, foreign exchange losses keep multiplying, creating a gloomy earnings story for the food and beverage makers for the current year.

The cost of sales grew well ahead of sales revenue, at 76 per cent to over N134 billion in the first quarter, compared to a 43.4 per cent increase in turnover.

This is an adverse shift from the 22.5 per cent growth in sales revenue to N547 billion and 13.4 per cent growth in production cost to N330 billion at the end of the 2023 operations.

The result is that the increase in cost of production at N58 billion exceeded the increase of N55.5 billion in sales revenue during the first quarter. The incursion lowered gross profit from N51.7 billion to N49 billion over the review period.

This detracts from last year’s performance when cost savings from input expenses spurred an increase of over 39 per cent in gross profit to over N217 billion.

The drop in gross profit was further extended by an upsurge of 129 per cent in administrative expenses year-on-year to over N8 billion at the end of March 2024.

This pressured operating profit to drop 27 per cent to less than N21 billion for the quarter.

This development is unlike last year, when operating profit increased by 41.5 per cent to close the year at almost N124 billion.

The big hit was finance costs, which were driven by huge net foreign exchange losses, which multiplied 41 times year-on-year to N218.8 billion at the end of the first quarter.

Apart from foreign exchange losses, the company’s huge borrowings are also under pressure from the cost of finance. Interest expenses swelled more than four and a half times year-on-year to N27 billion at the end of the quarter.

 

Interest-bearing debts continued to rise, jumping from N155 billion in 2022 to N402 billion at the end of 2023 and further to N567 billion at the end of the first quarter.

Net finance cost multiplied from N3.7 billion in the same period last year to N217 billion this year. This is the centre of the company’s operating difficulties in the first quarter and represents its huge loss driver for the period. The net loss absorbed the operating profit, creating a pre-tax loss of N196 billion for the first quarter, down from a pre-tax profit of roughly N25 billion in the same quarter last year.

An income tax credit of N53.4 billion provided some respite, lowering the after-tax loss to N142.7 billion for the period.

Last year’s net loss created a retained deficit of about N79 billion and negative equity in excess of N78 billion. The net loss in the first quarter multiplied the retained deficit to over N221 billion, but a revaluation reserve of N150 billion reduced the negative equity capital to under N71 billion.

Earnings per share plunged from N20.45 in the first quarter of last year to a loss of N180.01 at the end of March 2024.