Twenty Nigerian listed firms made less cash from their core business activities in the first three months of 2024, an analysis by BusinessDay reveals.
The firms’ latest financial statements show that they posted a combined negative net cash of N476 billion in Q1.
The companies that recorded the biggest value were Dangote Sugar Refinery Plc with N121 billion, Nigerian Breweries Plc with N68.3 billion, Lafarge Africa Plc with N60 billion, Nestle Nigeria Plc with N38 billion, and BUA Cement Plc with N31 billion.
Israel Odubola, a Lagos-based economist analyst, said that a decline in cash flow from operating activities typically means a company is generating less cash from its core business operations. It shows that these businesses across diverse sectors are struggling to generate adequate cash to maintain or grow their operations.
“With higher inflationary pressure and weakening naira, it means these companies are spending more money on operations from raw material procurement to maintenance, thereby reducing the amount of cash left over from core business activities,” he said.
Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said if absolute cash flow from operations is declining, it can mean that they aren’t generating much cash in terms of sales to customers, thereby being challenged by the broad weakness of the economy from the consumer spending side.
He also explained that these companies are making sales but allow too much credit, indicating they need more stringent credit policies.
According to a Bloomberg report, Nigerian naira emerged as the world’s worst-performing currency over the last month.
The Central Bank of Nigeria (CBN) has taken steps to address the situation, including tightening monetary policy and stabilising the foreign exchange market. However, these measures have not yielded significant results, and the economic outlook remains uncertain.
The naira depreciated to N1,483.62, against the dollar on Monday, June 10 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ Securities Exchange Limited, indicated.
As the naira weakens, businesses that rely on imported raw materials and equipment are experiencing higher costs, which erode their profit margins.
Similarly, according to the National Bureau of Statistics, the country’s consumer price index rose from 33.20 percent in March to 33.69 percent in April for the 16th consecutive time.
This spike is largely attributed to rising food prices, transportation costs, and general price increases in consumer goods and services. For businesses, this means higher operational costs and increased difficulties in maintaining stable pricing for their products and services.
Retailers and service providers are also feeling the pinch. Consumers, whose purchasing power is eroded by inflation, are cutting back on discretionary spending.
“This drop in consumer demand is hitting the revenues of companies in the retail and services sectors, leading to a decline in cash flow and making it difficult for these businesses to meet their financial obligations,” Ibrahim added.
Uchenna Uzo, professor of marketing at Lagos Business School attributes these widespread losses to a combination of external and internal factors.
“Externally, global economic uncertainties and trade disruptions have had a ripple effect on Nigeria’s economy. Internally, policy inconsistencies, infrastructural deficits, and security concerns have exacerbated the situation.”
“Rising production costs, supply chain disruptions, and reduced consumer spending power have significantly dented profitability. Major manufacturers, once robust and thriving, are now grappling with dwindling revenues and escalating operational expenses,” he added.
