Nestle Nigeria, one of the country’s leading consumer goods companies, has announced a loss after tax of N43.068 billion for the first nine months of 2023.
This significant loss is primarily attributed to foreign exchange losses resulting from the devaluation of the Nigerian Naira. As a result, the company’s retained earnings balance has turned negative, impacting shareholders’ equity.
The negative retained earnings balance stands at -N41. billion as of September 2023, which may hinder the company’s ability to pay dividends for the current fiscal year. This marks a departure from Nestle Nigeria’s consistent profit and dividend record over the past five years, highlighting the challenges posed by the devaluation of the Naira and subsequent foreign exchange losses.
Retained earnings represent the cumulative net income of a company, minus dividends paid to shareholders. Negative retained earnings indicate accumulated losses instead of profits, which can result from various factors such as sustained operating losses or significant accounting adjustments. In Nestle Nigeria’s case, the loss in retained earnings can be traced back to the post-tax loss of N43.068 billion in the first nine months of 2023, primarily due to an N127.458 billion net foreign exchange loss.
Despite the negative financial situation, Nestle Nigeria’s performance in both the top and middle lines have shown promise. The company recorded a substantial year-over-year growth of 41.17% in profit from operations, reaching N91.586 billion. Additionally, there has been a slight recovery in the bottom line, with a Q3 post-tax profit of N6.913 billion, implying gradual improvement.
Notably, Nestle Nigeria’s trailing twelve-month earnings per share stands at -N43.22, indicating a lack of profitability for shareholders. Despite this, investors have placed a higher relative value on the company’s sales, as reflected in its Price to Sales (P/S) ratio of 1.95, surpassing Cadbury’s P/S ratio of 0.4. This suggests elevated expectations for Nestle Nigeria’s future growth and profitability.
Furthermore, Nestle Nigeria’s high price-to-book ratio of 28.78 signifies the market’s willingness to place a premium on its shares relative to its book value. This indicates strong market confidence in the company’s future growth, profitability, and overall value.