As stakeholders await Nestle Nigeria Plc’s third and fourth-quarter performances for 2024, mixed feelings persist about the company’s ability to navigate Nigeria’s challenging operating environment and deliver sustainable returns on investment.
Nestle Nigeria’s 2023 financial reports revealed a staggering loss after tax of N79.4 billion, a significant decline from the N48.9 billion profit recorded in 2022. Foreign exchange exposure and inflationary pressures crippled the company’s operations, resulting in a negative shareholders’ fund of N78 billion.
Mrs. Bisi Bakare, one of the notable women shareholders advocates and Coordinator of Pragmatic Shareholders Association of Nigeria (PSAN), expressed concerns about the impact of government economic policies on consumer and manufacturing sectors. “The case of Nestle is quite pathetic,” she noted. “The company needs to critically review its dollar-denominated transactions, source raw materials locally, and strengthen its backward integration program.”
However, bearing in mind shareholders expectations from the company, at its 55th Annual General Meeting (AGM) on May 22, 2024 in Lagos, which was scheduled alongside an Extraordinary General Meeting (EGM )aimed at seeking shareholders approval towards implementing measures to address the company challenge. Chairman of Nestle Nigeria Plc board of directors, Gbenga Oyebode assured shareholders that ” we will maintain a sense of hope for a turnaround in our business environment. Our strategic focus continues to be on fostering innovation to deliver affordable nutrition to our loyal consumers , achieving operational excellence and nurturing strong relationships with our valued customers and stakeholders “.
Oyebode added that “we will therefore sustain investment in our operations, enhance the capacity of our teams and implement initiatives that address social and environmental problems, promote nutritions, and support local communities to create shared value”.
A look at the company’s first and second quarter result in 2024, operating profit showcased Nestle Nigeria Plc, strong ability to navigate the pressured consumer market characterised by rising costs, naira devaluation and weak disposable income.
For instance Nestle Nigeria Plc first quarter result for the period ended March 31, 2024 showed that revenue performance stayed robust. However, profitability was pressured by significant foreign exchange losses of N191.67 billion.
Like its peers in the industry, Nestle Nigeria Plc topline performance remained strong in the second quarter of 2024, but the gains were offset by increased costs.
The unaudited results for the period ended June 30, 2024, showed a lower loss per share of N43.18 against N83.50 in 2023, translating to a loss per share of N223.19 in half year 2024 against loss per share of N63.06 in 2023.
The performance in the period was undermined by 85.9% substantial increase in the costs of sales. Revenue advanced by 67.0% in the second quarter of 2024 against 55.5% in 2023.
This was driven by strong performance in the company’s food segment by 68.8% in 2024 against 64.3% revenue in 2023, and Beverages segment by 64.0% in 2024 against 35.7% of revenue in 2023, reflecting consumer’s resilient demand for Nestle Nigeria Plc products.
Also, further checks revealed in the second quarter of 2024 that Nestle Nigeria Plc export revenue witnessed a significant increase, growing to N1.89 billion against N120.44 million in the same period in 2023, although domestic revenue continued to dominate, contributing 99.2% of the total revenue.
Other highlights of the 2024 half year reports, shows that EBITDA and EBIT margins both contracted, falling to 23.3% and 18.9%, respectively, amid a 53.7% rise in operating expenses.
The company reported a 21.8% decrease in net finance cost to N98.60 billion compared to N126.16 billion in 2023 owing to a 21.8% decrease in its finance cost.
This reduction was primarily driven by a 39.5% decline in exchange loss, despite a 238.4% increase in interest expenses on interest-bearing loans and borrowings of N653.92 billion in the period.
The company recorded a lower pre-tax loss of N56.44 billion against N94.02 billion in 2023. An income tax credit of N53.40 billion in half year resulted in a loss after tax of N34.23 billion against N66.19 billion in 2023.
Reacting to Nestle Nigeria’s first and second quarter results, Moses Igbrude, National Coordinator, Independent Shareholders Association of Nigeria (ISAN), offered his insights: “Nestle, like other multinational companies, faces challenges with its financial structure due to the floating of the naira and forex scarcity. Until Nestle rearranges its funding structure to minimize exposure to dollar-denominated borrowing, its prospects remain uncertain, given the naira’s downward trend”.
“However, it’s essential to note that Nestle has consistently generated operational profits. Foreign exchange losses are the primary issue, which management must address to return to profitability. Once the forex challenges are resolved, I see no inherent problem with the company’s operations. Dividends will resume once these issues are sorted out.”
In response to its negative earnings performance, Nestle Nigeria Plc board of directors has unveiled a proactive comprehensive plan to revitalize the company’s financial health.
The company opted for asset revaluation to boost shareholders funds. Parts of efforts to determine the true worth of its assets, Nestle Nigeria engaged Financial Reporting Council of Nigeria-certified valuers, M/s Niyi Fatokun & Co., to conduct an independent valuation of Land, Buildings, Plant, and Machinery as of March 16, 2024.
Managing Director/CEO, Mr. Wassim Elhusseini, reassured investors that despite the challenging operating environment, the company’s fundamentals remain strong. According to him the board is committed to monitoring policy developments and supporting measures to address negative net assets.
Other measures include, plans to reduce production costs through energy efficiency and by substituting imported inputs with local content.
According to the company, this will be supported by cost management efforts, which include a focus on high-margin product segments and higher reliance on domestic sourcing for major raw materials like maize and soya.
Additionally, strategies such as branding, product innovation, and enhancing route-to-market channels are expected to contribute to revenue growth.
Analysts projected that this should support the N78.04 billion negative equity balance in 2023 financial year to a positive equity balance of N47.34 billion in 2024. Market watchers anticipate dividends will be postponed until profits cover the deficit in retained earnings and turn positive.
Abiodun Keripe, Managing Director, Afrivest Consulting Limited, anticipates a significant reduction in Nestle Nigeria’s third-quarter loss, building on the momentum from the first and second quarters. Despite ongoing challenges, Keripe sees a gradual improvement in the company’s financial performance.
However, Keripe notes that strong revenue growth is tempered by persistent cost pressures, foreign exchange challenges continue to weigh on earnings and downside risks persist in the near term.
Despite these challenges, Keripe remains optimistic, citing Nestle Nigeria’s strong market position, strategic pricing strategies and commitment to product innovation.
“We believe there is room for continued revenue growth over the rest of the year, even with cost pressures and currency depreciation as persistent headwinds to profitability.” He added.
While market operators see the potential for improving operating performance in 2024 full year due to the company’s well-diversified product portfolio, robust customer-focused advertising, effective pricing and commitment to innovation.
David Imafidon Adonri, Vice Chairman of Highcap Securities Limited, shares his insights, “The devaluation of the Naira continues to erode Nestle’s bottom line, but turnover and operating profit are rising, signaling a recovery movement. In addition, it is expected that the introduction of new brands, including NIDO Milk and Soya Instant Powder Mix, in the last quarter of 2023, amid continuous capacity expansions to support volume growth. The company’s medium to long-term prospects are bright.”
With a share price of N890 at the close of trading on Thursday October 10, 2024..For the rest of the year, the market strongly believes that while challenges persist, Nestle Nigeria’s journey to recovery is underway, driven by strategic pricing, product innovation, and cost management efforts.
Listed on the Nigerian Exchange Limited,(NGX) formally Nigerian Stock Exchange (NSE) on April 20, 1979, Nestlé Nigeria is one of the largest food and beverage companies in Africa. For over 59 years, the company has been delighting consumers around Nigeria by consistently delivering high quality nutritious food.
With a staff strength of over 2,200 direct employees, 3 manufacturing sites, 7 branch offices and a head office located in Lagos, the company produces and markets several iconic brands including NESTLÉ PURELIFE, GOLDEN MORN, MILO, MAGGI and NESCAFÉ. Nestlé’s purpose is to unlock the power of food to enhance quality of life for everyone today and for generations to come.
