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Nestlé Nigeria’s financial difficulties worsened in the first nine months of this year compared to the same period in 2023.
Details of a newly released nine-month earnings report showed the company’s balance sheet has been in tatters for more than a year, as it remains at the mercy of currency fluctuations that hurt its profits.
The after-tax loss of Nestlé SA, the world’s largest food company,’s Nigeria operations in the January-September period jumped 328% from a year ago.
This came after net foreign exchange losses incurred when converting foreign currency debt into the base currency, the naira, more than doubled to N285.3 billion.
Foreign currency borrowings account for more than half of Nestlé Nigeria’s debt.
And that’s a major financial concern, given that it earns most of its revenue in naira and needs to convert it into dollars and other currencies to service its debts.
The company’s dollar debt soared in naira terms during the period after Nigeria’s financial authorities implemented a temporary devaluation of the local currency in January, but the limited supply of dollars caused the naira to depreciate further.
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Sales of the maker of Milo, Golden Moan and Maggi rose by 67.8% to N685.3 billion during the period under review.
Cost of goods sold nearly doubled to N459 billion on the back of a dramatic increase in raw material expenditure. Nestlé Nigeria relies heavily on imports for raw material procurement, making it susceptible to currency exposure in its supply chain.
But the focus is shifting inward. The food giant is turning to domestic suppliers of turmeric, replacing imported corn starch with local cassava starch and reducing its need for foreign exchange, Reuters reported.
But like all consumer goods companies, the company faces a new problem domestically: inflation, which even the monetary authorities have been unable to contain for months.
Price levels slowed in July for the first time in 19 months, but rose again two months later. This is a blow to FMCG companies like Nestlé Nigeria, which saw its marketing and distribution expenses increase from N58.9 billion to N73.4 billion during the review period.
Losses after tax accelerated to N184.3 billion from N43.1 billion a year earlier. The company’s negative equity rose to N112.1 billion from N73.1 billion at the end of last year.
Debts and payables to trading partners increased by 7.4% to NGN 211.8 billion, while current liabilities stood at NGN 277.3 billion.
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Nestlé Nigeria did not respond to an email inquiry from Premium Times last month seeking a plan to settle trade debts and payables of N178.1 billion as of June.
The stock has lost 19.6% in value so far this year.
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