Nigerian drugmakers are finding it difficult to earn cash from their main business operations due to rising inflation, declining consumer purchasing power, and the devaluation of the naira.
As a result, amidst a high-interest rate environment, these firms have increased their overall borrowings to finance their working capital (a measure of a company’s liquidity and short-term financial health).
Data gathered by BusinessDay on May & Baker Nigeria Plc, Neimeth International Pharmaceuticals Plc, Morison Industries Plc, and Fidson Healthcare Plc reveal that total borrowings by these firms were up 19.2 percent to N24.2 billion in the nine months of 2024 from N20.3 billion in the same period of 2023.
During the period, Morison Industries and Fidson Healthcare reported negative cash flow in their operating activities amounting to N22 million and N12.5 billion, respectively, while May & Baker and Neimeth International Pharmaceuticals reported positive cash flows.
Furthermore, the data reveals that these four (4) firms increased their short-term borrowings, but they reported no remarkable increase in long-term borrowings.
This year, the Central Bank of Nigeria (CBN) raised its Monetary Policy Rate (MPR) five consecutive times, bringing the benchmark interest rate to 27.25 percent in September from 26.75 percent in July 2024 to curb inflation.
Nigeria has reported a 28-year high inflation rate despite CBN’s tightening policy. According to the National Bureau of Statistics (NBS), the headline consumer price index has risen to 34.60 percent from 33.88 percent in October.
The pharmaceutical industry has faced mounting financial pressure due to fluctuating raw material costs and increased regulatory requirements. Developing new drugs and producing essential medicines have become more capital-intensive, compelling many drugmakers to secure loans to bridge funding gaps.
“The rising cost of active pharmaceutical ingredients (APIs) and transportation delays have forced us to rethink our financial strategies,” said Amara Yewande, chief finance officer (CFO) of a mid-sized pharmaceutical firm. “Short-term loans allow us to stay agile while we explore long-term solutions.”
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Fidson Healthcare
Having reported a negative cash flow from operating activities after working capital changes due to the cash outflow from the increase in inventories, trade and other receivables, and prepayments, Fidson reported a 29.5 percent increase in total loans and borrowings.
Its total loans and borrowings increased to N14.9 billion from N11.5 billion, while net cash flow from operations for the period was N-12.5 billion.
The drugmaker increased its short-term by 123 percent and its long-term borrowing fell by 17.4 percent indicating that it took out more loans to cater to its day-to-day operations.
Morison Industries
Morison’s borrowings were to N168 million from N149 million with short-term borrowings accounting for the rise in total borrowings.
The firm’s short-term borrowings were up by 12 percent while the company didn’t report any borrowed funds for its long-term obligations. Morison’s cash from core business operations declined to N22 million from N26 million.
May & Baker
Borrowings reported by May & Baker fell by 5.7 percent to N5.05 billion from N5.36 billion.
Data from the Nigerian Exchange Group shows that the drugmaker reported short-term borrowings of N3.78 billion from N3.87 billion while long-term borrowings fell to N1.27 billion, indicating that it borrowed more money to finance its working capital needs.
Net Cash flow from operations after working capital changes grew marginally by 22.8 percent to N2.9 billion from N2.36 billion due to the increase in proceeds from fixed assets and interest received during the period.
Neimeth International Pharmaceuticals
Total borrowings reported by Neimeth increased by 23.7 percent to N4.11 billion from N3.32 billion. on the back of an 80.1 percent decline in long-term borrowings during the period.
Short-term borrowings, on the other hand, increased by 112 percent to N3.82 billion from N1.8 billion.
Neimeth reported a turnaround in its net cashflow flow from operations to a positive N614 million from a negative N615 million.
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