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Nestle loss N5.8 billion water factory in Abuja 

Chinenye's Blog

Nestle loss N5.8 billion water factory in Abuja

Nestle factory declares a loss on new N5.8 billion water in Abuja.

Nestle has confirmed that it has taken a N3.4 billion impairment loss on its new Water Factory in Abaji, Abuja. The Abaji factory was commissioned in 2016 and compliments the existing Agbara factory in Ogun State.

But before we continue, let’s digress small:

Nestle released its first quarter results and as expected, they did not disappoint. Earnings per share were up 2.9% to N10.85 compared to N10.55. More importantly, revenue rose 10.3% year on year and I am glad for that.

Perhaps you are thinking, “this compares to a 69% rise in revenues in March 2017, so why is 10% so great?” In 2017, Nestle’s revenues were largely driven by price increases and not necessarily volumes. To counter a difficult inflation laden 2016, they had to raise prices. It is also important to note that 2016 was a very low base for Nestle.

So long as Nestle grows its revenue enough to maintain a gross profit margin of 35%, then I believe that they are doing just fine.

The company also recently launched a slew of products such as Nestle Milo (ready to drink) RTD, Maggi Naija Pot, and Golden Morn Puffs. We will be tracking these products to see how they are faring in key markets across Lagos.

Nestle also dropped a bombshell in its Q1 results. The company disclosed that it had taken a N3.8 billion loss provision on its new Water Factory in Abaji Abuja.

This was a rude shock to me as I had all the while thought that the factory was producing already and that the company was starting to make some money from it.

According to Nestle, “the expected business growth and gain of market share for the factory has not been realised and the outlook for future expansion is below estimates.”

The company tested the factory’s facility for impairment and recorded an impairment loss of N3.4 billion in respect of related property plant and equipment.

Nestle may have reported a profit of just over N13 billion if it had not taken on that provision. Nevertheless, it is a good thing that they have acknowledged the failure recorded in this water plant. Consumer business is very challenging and competitive even if you are a Nestle.

Why it matters

This is a factory that cost the company about N5.6 billion to construct on a land size of about 14.6 hectares. The factory promised to create 111 new jobs and produce Nestlé Pure Life, which is regarded as the world’s largest bottled water brand.

It was also supposed to be Nestlé Waters’ second and most modern water
the processing facility in Central and West Africa, complementing the existing Agbara factory in the Ogun State.

Interesting to note that the project was expected to also support future demand and growth in the northern and western regions of Nigeria.

This is a two-year-old factory that was commissioned in 2016 by Vice President Yemi Osinbajo. The government was excited about the factory, especially as it is located in the FCT and promised to support the company and the private sector at large.

Nestle reported an N8.6 billion profit this quarter compared to N8.3 billion in the prior quarter. Without this impairment, the company’s profits may have been in excess of N13 billion.

Chinenye's Blog
Tags : NestleOgun StateYEMI OSINBAJO
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