Nestlé Nigeria Battles Profit Slump as Forex Losses and Inflation Pummel Margins

Nestlé Nigeria Plc has posted a 15% drop in full-year profit for 2024, as foreign exchange losses, higher financing costs, and inflation-induced expense spikes outpaced modest revenue growth. The food and beverage giant, one of the largest consumer goods companies on the Nigerian Exchange, saw profit after tax slide to ₦38.8 billion, down from ₦45.5 billion recorded in 2023.

This decline came despite a 7% rise in revenue, which reached ₦547.1 billion for the year. The company’s topline growth reflects resilient demand for essential food and beverage products, even as the average Nigerian consumer grappled with falling purchasing power in an economy battered by currency depreciation, inflation, and weak real wages.

Cost Pressures from All Angles

Nestlé Nigeria’s 2024 gross profit rose slightly to ₦202.3 billion, compared to ₦196.8 billion in 2023, aided by selective price increases across key product lines. However, this modest gain was more than eroded by a 63% surge in finance costs, which jumped to ₦52.6 billion from ₦29.7 billion in the prior year.

The company’s exposure to foreign currency loans, alongside the naira’s sharp depreciation in the aftermath of Nigeria’s exchange rate liberalisation in mid-2023, significantly inflated its foreign exchange losses, a recurring challenge for import-dependent manufacturers.

The recently released Quarter 5 financial statement offered further granular insight into these pressures. Nestlé Nigeria’s cost of sales grew by 8.7%, reaching ₦344.8 billion, driven largely by imported raw material costs and energy price hikes. Administrative and marketing expenses also rose by 12%, reflecting higher logistics, distribution, and employee costs, all amplified by Nigeria’s spiralling inflation, which stood at 29.9% in December 2024.

Currency Risk Still Looms Large

The steep rise in finance costs underscores Nestlé Nigeria’s delicate balancing act: servicing foreign-denominated liabilities while managing severe currency volatility. As highlighted in the Q5 report, the company’s foreign exchange loss alone stood at ₦33.5 billion, up from ₦12.2 billion in 2023.

For a company that relies on imported machinery, packaging materials, and certain specialised ingredients, the naira’s persistent weakness remains a structural vulnerability. This explains the group’s intensified pivot to local sourcing, which now accounts for over 80% of agricultural raw materials, up from 72% in 2023.

Shareholders Rewarded Despite Headwinds

Despite the weaker profit, Nestlé’s board declared a final dividend of ₦36.50 per share, bringing the total 2024 dividend to ₦46 per share when combined with the interim payout. This maintains the company’s tradition of generous distributions, even though it represents an 86% payout ratio — a high proportion by global standards and a signal of management’s desire to reassure investors.

However, the company’s share price performance in 2024 reflected investor anxiety, dropping 13% during the year, underperforming the 15% gain posted by the broader NGX Consumer Goods Index. Analysts have warned that the sustainability of such high payout ratios could become contentious if profitability remains under pressure in 2025.

Local Sourcing and Energy Diversification to the Rescue?

Nestlé Nigeria’s response to these challenges rests on deepening its local supply chain, cutting its foreign exchange exposure, and improving energy efficiency. The company has expanded its use of locally sourced grains, starches, and dairy inputs, while investing in energy-efficient machinery and renewable energy solutions at its Agbara and Flowergate factories.

However, as industry analysts point out, local sourcing does not eliminate all forex risk. Packaging materials, specialised ingredients, and industrial machinery still require hard currency purchases, meaning the company’s margin profile remains linked to exchange rate movements.

The Q5 report also revealed Nestlé Nigeria’s focus on price optimisation, with price increases contributing significantly to revenue growth. However, analysts caution that the limits of pricing power are being tested, as consumers — increasingly squeezed by inflation and static wages — downgrade to cheaper substitutes or smaller pack sizes.

Balancing Growth and Profitability in 2025

For 2025, volume recovery in core categories like dairy, culinary, and beverages will be critical, especially as the company’s products face rising competition from lower-priced alternatives. Nestlé Nigeria’s innovation pipeline — including new variants of Milo, Maggi, and Golden Morn — is expected to drive some incremental volume growth, but macroeconomic stability remains the real wildcard.

“Nestlé’s strength lies in its unmatched distribution network and deep brand equity,” said Bolaji Salami, consumer goods analyst at Lagos-based Meristem Securities. “But in a high-inflation environment, there’s a limit to how much pricing can compensate for cost inflation.”

Investor Sentiment: Cautious Optimism

Investors are likely to monitor two key factors in the months ahead: first, the pace at which inflation moderates, and second, the trajectory of the naira. A stabilisation of the currency, even at a weaker level, would ease the severity of forex losses — a critical determinant of profitability.

The company’s robust dividend track record will provide some cushion for its valuation, but questions about earnings resilience are unlikely to disappear. If profit pressures persist, analysts say the company may need to rethink its capital allocation strategy, potentially moderating dividends to preserve investment capacity for efficiency-enhancing projects.

Ultimately, Nestlé Nigeria’s fortunes remain tightly bound to Nigeria’s broader macroeconomic trajectory.

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