Nestlé Nigeria’s Return to Profit: How Foreign Exchange and Parent-Company Debt Shaped the Recovery

Marketing has its many talking points. Growth, market share, brand visibility, revenue and expansion often dominate conversations about business performance. Losses, on the other hand, are rarely the headline anyone wants to lead with.

Yet, losses tell a story too.

A company’s financial statements offer more than a record of what it earned or spent. They provide an opportunity to examine the decisions, market conditions and financial pressures behind its performance.

For Nestlé Nigeria Plc, the 2024 financial year was one worth examining. The company recorded a loss of ₦164.6 billion after tax.

A year later, the picture had reversed. Nestlé Nigeria reported a profit after tax of about ₦105 billion for 2025, on revenue that rose 26 per cent to ₦1.21 trillion.

It is an easy turnaround to celebrate and a harder one to explain. Between the two years, operating profit rose by about ₦57.5 billion. Profit before tax improved by about ₦388.4 billion. The gap between those two numbers is where this story sits. How much of the recovery came from running the business better, and how much came from the way the business is financed?

What improved in the business

The operating improvement is real, and it deserves to be stated plainly first. Revenue grew from ₦958.8 billion in 2024 to about ₦1.21 trillion in 2025. Results from operating activities rose by 34 per cent, from ₦167.9 billion to ₦225.4 billion, and the operating margin moved from 17.5 per cent to 18.7 per cent.

CardinalStone Research, in its 26 February 2026 earnings update, noted that revenue grew faster than cost of sales. Revenue rose 26 per cent while cost of sales rose 18.3 per cent, lifting gross margin from 32 per cent to 36.1 per cent. Spending did not shrink to help. Marketing and distribution expenses rose by about 51.3 per cent, from ₦106.9 billion to ₦161.7 billion, and administrative expenses rose by 53.1 per cent. The statements show that spending went up. They do not show how much revenue each extra naira produced.

Higher revenue alone does not establish how much more the company sold, because prices also affect sales value. The stronger operating margin shows that Nestlé retained more operating profit from each naira of revenue. It does not isolate the contribution of pricing, volumes or procurement decisions.

So the core business got better. But ₦57.5 billion of extra operating profit cannot, on its own, turn a pre-tax loss of ₦221.6 billion into a profit of ₦166.8 billion. Something much larger moved, and it sits in the finance line.

The line that moved

Net finance costs fell from ₦389.5 billion in 2024 to ₦58.5 billion in 2025, a drop of about ₦330.9 billion. Set against the ₦57.5 billion gain in operating profit, that drop accounts for about 85 per cent of the improvement in profit before tax.

The largest movement was in foreign exchange. In 2024, Nestlé recorded a net foreign exchange loss of about ₦290.7 billion in its finance line. In 2025, it recorded a net foreign exchange gain of about ₦40.1 billion. Together that is a swing of roughly ₦330.8 billion, almost exactly the full fall in net finance costs. Take that exchange line out and net finance costs were about ₦98.8 billion in 2024 and ₦98.6 billion in 2025. This remaining figure includes interest income and charges beyond loan interest, so it is not a measure of the cost of debt alone.

None of this makes the operating gain small. It means most of the distance between the 2024 loss and the 2025 profit was covered by the finance line, not by operations.

The change from the 2024 pre-tax loss to the 2025 profit, separated into operating-profit growth and lower net finance costs.

Source: Nestlé Nigeria 2025 audited financial statements, statement of profit or loss and Note 10; calculations from unrounded figures. The finance-cost contribution is 330.929 ÷ 388.435, or 85.2 per cent. This is a breakdown of the year-on-year improvement, not of the 2025 profit itself.

The 2025 gain also needs careful reading. The audited accounts show about ₦7.8 billion as realised and ₦32.3 billion as unrealised. Unrealised gains come from restating foreign currency balances at the reporting date. They lift reported earnings without bringing in an equivalent amount of cash. About four-fifths of the 2025 gain, then, is revaluation and not money received.

The naira did more than hold steady at the year end. The accounts used a closing dollar rate of ₦1,435.75 for 2025, compared with ₦1,535.82 for 2024. That lower naira price of the dollar reduced the translated value of dollar liabilities. The 2024 finance-line loss comprised about ₦57.6 billion realised and ₦233.1 billion unrealised losses.

There is another distinction. Holding all other reported items constant, removing the ₦40.1 billion exchange gain from 2025 would still leave about ₦126.8 billion in profit before tax. Avoiding a repeat of the previous year’s enormous currency loss mattered more than earning a new gain. This calculation is not a forecast of performance under another exchange rate.

Management was working on the exposure from the other side. In a 10 September 2025 interview with BusinessDay’s Wasiu Alli, Managing Director and CEO Wassim Elhusseini spoke about increasing local procurement, using available foreign exchange liquidity and settling foreign exchange obligations promptly to limit exposure to currency swings. Less dollar buying and faster settlement can reduce exposure. But the financial statements do not isolate what these measures contributed to the 2025 gain, so their effect cannot be put in naira.

The parent-company loans

Part of the exposure sits in borrowing from the parent. The five principal balances disclosed for loans from Nestlé S.A. total US$315 million at December 2025. The facilities are unsecured, have seven-year tenors from their respective commencement dates and carry interest tied to the three-month US dollar Secured Overnight Financing Rate, or SOFR, plus margins ranging from 7.73 to 12.11 percentage points. The disclosed terms place the earliest maturities in 2027. During 2025, the company repaid US$40 million on one facility.

Their reported naira carrying value was about ₦471.2 billion, including accrued interest. That is different from the outstanding principal: the US$315 million principal alone translates to about ₦452.3 billion at the disclosed closing rate. Parent-company funding gives the subsidiary access to finance, but repayment and interest still require dollars. Earning most of its sales in naira leaves a currency mismatch.

Because the loans are in dollars, the exchange rate acts on them directly. A weaker naira raises the naira cost of settling them, and a stronger naira lowers it. They are one channel through which the exchange rate shapes the results, but not the only one. The 2025 gain relates to foreign currency balances across the company, and the annual report does not attribute it to these five facilities alone.

For scale, the ₦471.2 billion carrying value of the parent loans represented about 99 per cent of the ₦476 billion total in the borrowings note at the end of the year. That total also included bank import-trade obligations; overdrafts and leases were separately reported.

What was charged and what was paid

If the exchange line explains the swing, interest explains what stayed behind. In 2025, Nestlé recognised about ₦81.9 billion in interest expense on intercompany loans, down from ₦89.5 billion in 2024, before foreign exchange differences.

The cash flow statement tells a different story. The company paid about ₦169.7 billion in cash interest on those loans in 2025, against ₦15.1 billion in 2024. Total cash finance costs paid were ₦178.4 billion, up from ₦25.6 billion.

Interest expense is the charge the accounts attach to a period. Cash interest is what left the bank during it. The two need not match in any single year, but a gap this size deserves attention. Note 10 identifies the recognised intercompany interest expense; Note 23 separately identifies the cash payments. Neither provides a facility-by-facility reconciliation establishing which periods the 2025 payments settled. The disclosed moratoria on interest payments provide context, but do not establish the explanation for this particular gap.

How borrowings fell

Reported borrowings declined from about ₦653.7 billion at the start of 2025 to ₦476 billion at the end, a fall of ₦177.7 billion. It is tempting to read that as debt repaid. The annual report’s reconciliation shows a more mixed picture.

The company took ₦133.8 billion in new bank loans. It repaid ₦129 billion in bank loans and ₦61.8 billion in intercompany principal. Interest expense added about ₦90.6 billion to the balance, cash interest payments removed ₦178.4 billion, and an unrealised foreign exchange gain of about ₦32.8 billion reduced it further. That last item is a revaluation, not money paid. The lower closing balance reflects repayment, interest payments and a currency gain together.

The exposure that remains

The net dollar liability exposure disclosed in the currency-risk table fell from about US$441.9 million at December 2024 to US$335.1 million a year later. This is exposure across the financial instruments in that table, rather than parent-loan principal alone. It remained substantial: a weaker naira would increase the naira value of a net dollar liability, all else equal. Local sourcing can limit future dollar requirements, but cannot remove existing dollar debt.

Nine months into 2026

The unaudited interim results for the nine months to September 2026 look like a continuation. Profit after tax rose 43 per cent to about ₦103.4 billion from ₦72.5 billion in the same period of 2025, and profit before tax rose 52 per cent to about ₦193.9 billion from ₦128 billion. Revenue grew by about 10 per cent and operating profit by 15 per cent, so the operating business kept improving.

The finance line again did a large share of the work. Operating profit rose by roughly ₦26.9 billion while profit before tax rose by about ₦65.9 billion. Lower net finance costs account for the other ₦39.1 billion, or about 59 per cent of the improvement. But the composition changed. Note 6 shows interest expense falling by about ₦24.5 billion, while the exchange gain rose from about ₦20.8 billion to ₦35.3 billion, an additional ₦14.6 billion. Unlike 2025’s full-year comparison, lower interest expense contributed more than the change in exchange gains to this finance-line improvement.

The annual recovery had also brought a sharp improvement in operating cash flow, from ₦5.9 billion in 2024 to ₦363.5 billion in 2025. The nine-month comparison in 2026 was less straightforward. Net cash from operating activities fell about 15 per cent, from ₦248.4 billion to ₦210.6 billion, in a period when profit after tax rose 43 per cent. Cash generated from operations before tax and other payments slipped from about ₦276.5 billion to ₦262.7 billion. The release of prepayments supplied only ₦4.7 billion, against ₦38 billion a year earlier, while trade and other receivables absorbed ₦8.4 billion after supplying ₦3.4 billion. Lower inventory absorption partly offset those changes. Higher income tax payments accounted for ₦23.7 billion, about 63 per cent, of the ₦37.8 billion fall in net operating cash flow.

Like-for-like nine-month figures show different movements in earnings and operating cash. Cash interest is reported separately under financing activities.

That is not the whole cash picture. Finance costs paid, classified under financing activities, fell from about ₦140.9 billion to ₦59.7 billion. Subtracting purchases of property, plant and equipment and those finance payments from net operating cash leaves about ₦88.3 billion, against ₦37.9 billion a year earlier. This is an analytical subtotal before other investing and financing flows, not a cash-flow measure reported by the company. It shows why falling operating cash alone does not establish weaker overall cash available after investment and interest.

The interim borrowings reconciliation also records no intercompany principal repayment in the first nine months of 2026. Total borrowings nevertheless fell from ₦476 billion at December 2025 to ₦426.3 billion, reflecting other movements, including interest payments and currency revaluation. A lower naira borrowing balance is not, by itself, evidence that the parent’s dollar principal has been repaid.

What the recovery depended on

Nestlé Nigeria’s return to profit rests on two things that are easy to run together. One is a better business, with higher revenue, a stronger gross margin and about ₦57.5 billion more operating profit. The other is a finance line that swung from a ₦290.7 billion exchange loss to a ₦40.1 billion exchange gain, most of that gain unrealised.

Management can work on sales, costs, sourcing and the amount and timing of foreign currency obligations. It cannot set the exchange rate. The 2026 figures show a further improvement in operating profit and a lower interest charge, alongside more currency gains. Operating cash flow fell, but the cash remaining after the selected investment and interest payments increased.

The recovery is therefore more than a currency gain. Nestlé earned enough operating profit in 2025 to cover its reported net finance costs even without that year’s exchange gain. What remains uncertain is how well those earnings and cash flows would withstand another large depreciation while dollar obligations remain outstanding.