Nestle Nigeria revalues fixed assets to fix negative shareholders funds

Date:

Nestlé Nigeria PLC has announced a strategic revaluation of its fixed assets, a decision spurred by the company’s FY 2023 financial results which reported a substantial loss, erasing shareholders’ funds by N78 billion.

 

Nairametrics earlier reported Nestle recorded a loss before tax of N104 billion for the year ended 2023 compared to a profit before tax of N71 billion same period in 2022.

 

The losses were largely due to a foreign exchange loss of N195 billion which was the major reason for the overall loss reported by the company. The company however, stated that “94%” of the fx losses were “unrealized” and as the company still had strong fundamentals.

 

Recommended reading: Nestle Nigeria reports N104 billion loss in 2023, shareholders funds wiped out

What Nestle is saying

According to Nestle, this revaluation aims to provide a more accurate representation of the company’s financial health and asset value.

 

The company’s board disclosed that its property, plant, and equipment (PPE), previously recorded at historical costs, will now reflect their fair market value.

Historically, these assets were listed at cost less accumulated depreciation and impairment losses.

Nestlé Nigeria stated that despite stating its assets at cost, it has heavily invested in enhancing its manufacturing and distribution facilities over the past five years, more than doubling the net book value of its PPE from N73.3 billion in 2018 to N165.4 billion by the end of 2023.

It also claimed that the investments, accelerated by the addition of new capacities and the integration of advanced technologies, necessitated a revaluation to align with current market conditions and the increased foreign obligations on the liabilities side.

How they revalued the assets

Nestle stated that an independent valuation was conducted by the certified firm of valuers, M/s Niyi Fatokun & Co.

 

The evaluation covered key facilities including the Agbara Factory in Agbara, the Flowergate Factory in Sagamu, the Abaii Factory in Abuja, and distribution centers in Agbara and Ota.

The valuation, which assessed the market value of land, buildings, and plant and machinery as of March 16, 2024, concluded a total market value of N305.4 billion, a significant increase from the previous carrying values recorded at the end of 2023 and February 2024.

The comparative figures outlined in the report showed a drastic increment in market values:

 

Land: From N1.2 billion to N14.8 billion

Buildings: From N28.5 billion to N51.3 billion

Plant and Machinery: From N58.5 billion to N238.9 billion

Total Increase:From N88.3 billion to N305.4 billion

This revaluation has thus led to an increase in the market value of revalued assets under PPE by N217.1 billion as compared to the carrying value as of December 31, 2023, and N214.3 billion as of February 29, 2024.

 

Furthermore, Nestlé Nigeria also said it has taken steps to comply with global and local accounting standards, providing stakeholders with a transparent and accurate financial depiction.

About Nestle 2023 FY losses

The company acknowledged the effect of the losses on its going concern status stating as follows

 

“The Company made a net loss of N79 billion (2022: net profit N49 billion) for the year ended 31 December 2023 and as at that date, its total liabilities exceeded its total assets by N78 billion (2022: net asset N30 billion).”

“Despite the strong operational performance, the net profit is impacted by significant devaluation of the naira. The company believes that as macroeconomic situation stabilizes, the same would yield positive impact to the overall economy as well as company results.”

“The company has taken robust margin management and cost management initiatives to address significant forex volatility and cost inflation.”

“In 2023, the company’s revenue grew by 22.4%, an increase of ₦100billion and the operating profit increased by 41.2%.”

Nairametrics opined that the negative shareholder funds incurred by Nestle will most likely lead to a fresh raise of capital.

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