Financial analysts have stated that Nestle Nigeria may need fresh equity capital and government intervention to recover from the N176.9bn loss in the first half of 2024.
The company’s loss worsened by 254.51 per cent from the N49.9bn after-tax loss it suffered in the prior period of 2023.
Nestle blamed the devaluation of the naira, which led to the revaluation of its foreign currency obligations for the loss.
Analysts argued that the magnitude of Nestle’s loss had negative implications for the company, but submitted there was a path to restoration for the company.
A Board Member at Highcap Securities Limited, David Adonri, said a N176.9bn loss implied that Nestlé’s solvency was highly threatened and the company’s going concern status was also uncertain.
He submitted that because Nestlé’s shareholders’ funds were negative, investors may have technically lost their investment.
However, Adonri noted that by injecting fresh equity capital into the company, Nestle’s going concern status would not be at risk.
The stockbroker informed The PUNCH that Nestle was optimistic about recovery due to its increasing turnover.
He noted that if Nestle managed to reduce costs, the losses might decrease by the end of the year.
Beyond the negative impact on shareholders’ funds, Nestle’s loss has the potential to affect the company’s human capital and, by extension, the country’s economy.
Professor of Economics and Public Policy at the University of Uyo, Akpan Ekpo, explained that Nestle might begin to lay off workers because it has to meet its fixed costs.
He stated that naira depreciation was the chief factor in the loss.
“If that loss was sustained, most companies would begin to lay off workers because they need to meet their fixed costs; and they cannot pay their salaries if they fail to meet the fixed costs,” he explained.
Ekpo said the company’s loss could be traced to a decline in consumption due to hardship in Nigeria.
“Their (Nestle’s) sales are no longer doing well because consumption has declined,” he submitted.
Ekpo pointed out that Nestle’s loss was on a trajectory that made businesses exit Nigeria, which would have a social impact on the country’s economy.
However, the economist said Nestle could bounce back in H2 2024 with “the invisible hand of the government”.
He explained, “It (Nestle) can bounce back if the government decides to help it because it employs a lot of workers. The government can give it a tax break, relief in utility payments and concessions in import tax.”
He also suggested that banks could reschedule the company’s loan repayment, especially if Nestle had a history of doing well.
The economist reasoned that the macroeconomic situation in Nigeria has to change through the government’s tackling inflation as a stronger measure to curb business losses.
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