Rising inflation, FX pain bite consumer firms as unpaid bills rise by 34%

For most companies operating in Africa’s biggest economy, 2022 was a tough year as double-digit inflation and naira devaluation ate deep into profit margins, leaving firms with little or no money to carry out their day-to-day obligations.

Trade and other payables for nine publicly listed consumer goods firms recorded a 34 percent increase in the first half of 2023, according to BusinessDay findings.

Further findings showed these firms’ aggregate trade and other payables totaled N1.16 trillion in the first half of 2023, up from N865.17 billion in the same period the previous year.

“One of the primary drivers is the exchange rate, they have not necessarily bought more products but the value of what they are now owing has just ballooned,” Gabriel Idahos president of the Lagos Chamber of Commerce and Industry (LCCI) said.

The trade receivables of the following firms were analysed: Champion Breweries, Cadbury Nigeria Plc, Nascon Allied Industries, International Breweries, Unilever Nigeria Plc, Nigerian Breweries, Dangote Sugar Refinery, Nestle Nigeria Plc, and BUA Foods.

Trade payable refers to a company’s short-term obligations owed to its creditors or suppliers, which have not yet been paid. Payables appear on a company’s balance sheet as a current liability.

Trade and other payables are important figures in a company’s balance sheet. If trade and other payables increase over a prior period, that means the company is buying more goods or services on credit, rather than paying cash.

Sunmisola Ikoli-Oluwo, Equity Research & Business Strategy CSL Securities said, “One of the major contributors to the performance of payables in the FMCG sector is based on the increase of accruals.”

BusinessDay findings showed the rising cost of doing business is forcing consumer goods firms to make tough choices. Some firms are raising prices, which could lead to lower sales.

Nigeria’s annual inflation rate rose for the eighth straight month, its highest in 18 years, to 25.80 percent in August 2023.

The National Bureau of Statistics’ latest consumer price index report shows that food and non-alcoholic beverages contributed the most (13.36 percent) to the increase in the headline index, followed by housing water, electricity, gas and other fuel (4.32 percent), among other things.

Ikoli-Oluwo noted that Inflation is skyrocketing and the buying powers of consumers are getting poorer, stocks are going to be piled up in the warehouses of these firms, and profit will fall.

“Despite underperforming bottom-line performance in the concluded quarter, the current assets of companies in the FMCG sector are expected to offset liabilities in the short term as most of the payables are currently recorded in their current liabilities. The impact of the FX devaluation has not eroded the value of the assets of the company; therefore, the overall total assets of the company can offset the company’s payable with substantial shareholder equity,” Ikoli-Oluwo said.

“Higher payable would increase cashflow performance (cash at hand and equivalent) in H2’2023 allowing room for more capital expenditure and expansionary plans for the company,” Ikoli-Oluwo added.

The fluctuation in the naira’s exchange rate has further exacerbated the issue, as the official exchange rate has surged from N463.38/$ to N744.41/$, with the parallel market rate reaching N1,000/$.

However, Idahos said the cash flow of FMCG will likely record a decrease in the remaining half of the year.

“FMCG companies in Nigeria will have less cash flow because they will use whatever naira they have to pay off as much of their dollar debt as possible. This will cause their cash flow to bleed, and they will not be able to give credit to their distributors and major dealers because they need cash to survive,” Idahos said.

Firms Analysis

Dangote Sugar Refinery Plc

The sugar manufacturer experienced year-on-year growth in trade and other payables of 74.4 percent reaching N400.3 billion in the first half of 2023 from N229.52 billion recorded in the same period of 2022.

Letter of credit accounted for the most amounting to N337.5 billion, followed by accruals and sundry creditors amounting to N23.3 billion, among other things.