NIGERIA- Nestle Nigeria has announced the strategic revaluation of its property, plant, and equipment (PPE) to N305 billion (US$208m) from the previous valuation of N88.3 billion (US$60.4m) in a move meant to increase the company’s market valuation as a means of responding to losses and the resulting erasure of shareholders’ equity.
According to the company, the revaluation is meant to represent its current financial status accurately.
The food and drink conglomerate previously recorded PPE valuation at its initial purchasing/set-up cost less impairment losses and depreciation.
In December 2023, Nestle Nigeria recorded a net loss of US$54 million, causing total liabilities to exceed total assets by US$53.4 million.
The initial US$60.4 million valuation did not include the conglomerate’s investments and operations expansion over the past five years. This inclusion doubled the net book value of its PPE to US$110 million.
The new valuation included key production facilities, including the Flowergate factory in Sagamu, the Agbara Factory in Agbara, the Abaii factory in Abuja, and other distribution centers in Ota and Agbara.
The revaluation has helped enhance the company’s valuation, making it easier for Nestle Nigeria to access credit facilities. The value of the conglomerate’s assets has increased the company’s market valuation by US$144.5 million.
Nestle Nigeria argued that the investments over the years, driven by expanding capacities and technology integration, made revaluation necessary amid the prevailing high inflation and foreign currency obligations on debt.
During the recent Extra-Ordinary General Meeting (EGM), the board argued that the negative net assets reported were due to the revaluation of the company’s foreign currency obligations.
Nestle Nigeria Chairman Gbenga Oyebode justified the move by saying, “The financial statements for January-March 2024 were prepared based on the revaluation model for the class of assets revalued under PPE.
“This shift to the revaluation model is expected to give more reliable and relevant information on the company’s financial position, aligning asset values with current market conditions.”
However, analysts view both the initial and current PPE valuation as strategic, meant to preserve the company’s position in the market amid the reported poor performance.
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