Major consumer goods firms in Nigeria have more than enough money to pay their short-term debts, even as many have seen their earnings slump this year amid rising inflation, supply chain disruptions, and weakening consumer demand.
The total current liabilities of nine listed consumer goods firms stood at N2.01 trillion as at September 2023, up 23 percent compared to the same period of last year, according to data compiled by BusinessDay.
Their total current assets rose by 30.61 percent to N1.92 trillion from N1.47 trillion
The firms are Nestle Nigeria, Unilever Nigeria, International Breweries, Cadbury Nigeria, Nigerian Breweries, BUA Foods, Nascon Allied Industries, Dangote Sugar Refinery and Champion Breweries.
Nascon’s current ratio stood at 1.83 as of September; Dangote Sugar had at 1.81; Champion Breweries, 1.37; International Breweries, 1.30; and Unilever Nigeria, 1.17.
The current ratio measures a firm’s ability to pay its short-term liabilities with its current assets. A ratio greater than 1.00 indicates that a firm has the financial resources to remain solvent in the short term.
BUA Foods recorded a current ratio of 0.95; Nigerian Breweries, 0.93; Cadbury Nigeria, 0.87; and Nestle Nigeria, 0.40.
Ayodeji Ajilore, an investment research analyst with ARM Securities, said the Nigerian capital market presents many options for consumer goods firms considering future expansion.
“The businesses that have huge cash flow might resort to their reserves to plough back into the business,” he said. “The business might go into the market either to float additional equities through new issuance of securities or issuing bonds to match the project features.”
George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said the cash reserves to fund short-term obligations of most consumer goods firms have shrunk in recent months due to rising macroeconomic challenges.
“If the money for buying raw materials has shrunk by that percent and you don’t have enough dollars to back that up, it means a lower capacity utilisation for consumer firms,” he added.
An analysis of the financial statements of the nine firms showed a 95 percent slump in their combined profit as of September 2023 to N6.48 billion in the same period of last year.
“Strategic price increases will enable firms to generate more profit that will help build a robust cash flow to settle their debt obligations,” Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said.
He said consumer goods firms can fund their existing debts by rolling over some of the short-term obligations until their business recovers fully in terms of cash generation.
“Businesses tend to roll over their debt until they stabilise and the cash flows improve to pay their debt obligations,” he said.
According to Ibrahim, consumer goods firms can be more aggressive in terms of cost-cutting and cost efficiency, which can to some extent help improve their profitability.
Some of the firms suffered foreign exchange losses in the period under review brought on by the large devaluation of the naira that pushed up the naira value of dollar-denominated liabilities.
Following the move by the Central Bank of Nigeria in June to allow the market to determine the exchange rate, the naira fell from 461/$1 as of December 2022 to 777/$1 in September 2023.
According to the World Bank, the naira is one of the worst-performing currencies in Africa, losing nearly 40 percent of its value since June.
Dangote Sugar recorded a revaluation loss of N90.99 billion as of September, while Nestle Nigeria saw a revaluation loss of N143.4 billion.
“With N41.13 billion negative retained earnings, Nestlé is in need of recapitalisation in order to continue to sustain activities,’’ said analysts at Chapel Hill Denham Limited in a recent report.
Nigerian Breweries recorded an N86.83 billion revaluation loss in the period.
“I would be surprised if the economy grows more than one percent, especially with the softness in the currency market. Firms are struggling with securing foreign exchange to get inputs for their businesses,” Ikemesit Effiong, head of research and partner at SBM Intelligence, said.