Business a.m
Despite the strong fundamentals of Nestle Nigeria Plc, the company’s earnings per share (EPS) were negatively impacted by foreign exchange revaluation losses caused by currency devaluation.
The company’s operating profit for the nine months ended September 2023 increased by 41.17 per cent to N91.58 billion, up from N64.87 billion in the same period last year. However, the EPS decreased by 19.2 percent due to the impact of the revaluation loss.
Nestle Nigeria’s underlying performance remained strong, as its operating profit margin increased to 23.09 per cent in September 2023 from 19.46 percent the previous year.
Gross profit margin also surged 40.39 percent in the period under review from 35.17 per cent the previous year, driven by increased prices, product mix, and higher volumes.
It is worth noting that the revaluation loss was caused by the depreciation of the naira against the US dollar, which resulted in a higher translation cost for the company’s foreign currency-denominated loans.
In the nine-month period ended September 2023, Nestle Nigeria’s sales increased by 18.92 per cent to N396.59 billion from N333.37 billion in the previous year. This increase was driven by the company’s ongoing efforts to expand its product portfolio, strengthen its distribution network, and increase its market share.
However, the company’s bottom line was negatively impacted by a significant foreign exchange revaluation loss of N127.57 billion, which resulted in a loss after tax of N43.06 billion.
The weak naira, combined with the new administration’s economic reforms, has placed consumer goods companies in a challenging position, as they struggle to cope with the effects of currency risk. Nestle Nigeria’s negative shareholders’ fund of N41.17 billion, combined with total debt of N319.94 billion, has raised concerns about the company’s financial position. In order to address these concerns, the company may need to consider raising capital in the future to strengthen its balance sheet.
Similar to other consumer goods companies, Nestle Nigeria has seen its shares decline in value this year. As of the latest trading period, the company’s shares have lost 4.55 percent of their value, reflecting investor concern about the impact of the current economic conditions on the company’s performance. However, it’s important to note that some investors view the current dip in share price as a buying opportunity, given the company’s long-term prospects.
Going forward, Nestle Nigeria is expected to continue to benefit from its strong fundamentals, even as the economic environment remains challenging.
The company said it is focused on implementing strategic initiatives to improve its operational efficiency, enhance its financial performance, and strengthen its position in the market. These initiatives include improving its procurement practices, implementing cost optimization measures, and investing in digital transformation. The company’s confidence is also supported by its strong portfolio of brands.
