Nestle Nigeria Plc faced a challenging second quarter, reporting a significant pre-tax loss of N86.5 billion for the period ending June 30, 2023. This loss not only impacted the company’s Q2 results but also led to the erasure of its Q1 profits, resulting in a disappointing half-year performance, with profits plummeting to N61.6 billion – one of the worst performances in recent years.
The major factor contributing to Nestle Nigeria’s losses was a staggering forex loss of N123.7 billion, which significantly impacted its overall profitability.
Despite the negative financial outcome, the company’s Q2 highlights showed a notable increase in revenue, reaching N123.79 billion – a 19.2% rise. Similarly, there was a substantial improvement in gross profit, which surged by 50.6% to N55.6 billion, and an impressive 62.5% growth in operating profit, amounting to N32.1 billion.
However, these positive gains were overshadowed by the soaring finance cost, which spiked by a staggering 2547% to N121.6 billion, contributing to the substantial pre-tax losses.
Nestle Nigeria’s total debts also saw a significant increase, reaching N299.7 billion compared to N172.7 billion in Q1 2023, while working capital declined to N61.9 billion from N97.9 billion in Q1 2023.
The gross profit margin witnessed a notable improvement, rising to 41% from 32.9% year on year, and the operating profit margin increased to 24% from 17.6%.
The forex losses had a severe impact on the company’s financial position, resulting in its retained earnings being completely wiped out, with a deficit of -N49 billion, and the net assets now standing at -N48.6 billion.
Insights into Nestle Nigeria’s results indicate that the significant forex losses, totaling N123.7 billion, were the primary reason for the financial downturn. These losses not only erased the company’s retained earnings but also wiped out its net assets, which previously stood at N46.4 billion during Q1 2023.
Additionally, Nestle Nigeria had an intra-group loan of $454 million, which may have contributed to the forex losses experienced by the company.
The company now faces the challenge of either raising capital to address the negative equity or considering options such as converting some loans to equity or hoping for forex appreciation to mitigate the losses. Furthermore, the impact on retained earnings raises concerns about Nestle Nigeria’s ability to pay dividends this year unless it effectively addresses the underlying issues.
