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

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.

Read also: Consumer firms face dividend payment dilemma as retained earnings plunge

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.

Read also: How Nigeria’s consumer retail operators are coping with declining household spending

Nigeria Breweries Plc

The beer maker followed in second place with its trade and other payables amounting to N257.8 billion in H1’23 from N200.8 billion recorded in 2022.

Nestle Nigeria Plc

The food and beverage manufacturer saw a decline in its trade payable which amounted to N167.7 billion in H1’23 from N170.89 billion recorded in the same period of 2022.

International Breweries

International breweries saw their trade and other payables amount to N146.8 billion in the first half of 2023 from N122.9 billion recorded in the same period of 2022.

Unilever Nigeria Plc

The manufacturer of food ingredients and home and personal care products saw its trade payable increase to N74.32 billion in H1’23 from N50.61 billion recorded in 2022.

Bua Food Plc

Bua Food recorded an increase in its trade and other payables amounting to N56.2 billion in H1’23 from N43.9 billion recorded in the same period of 2022.

Withholding/ Value Added Tax Payables accounted for the most amounting to N42.6 billion, followed by trade creditors/ other current liabilities which amounted to N13.3 billion.

Nascon Allied Industries Plc

National Salt Company Nigeria Plc (NASCON), recorded a marginal increase in its trade and other payables amounting to N28.3 billion in H1’23 from N23.9 billion recorded in the same period of 2022.

Under its trade and other payables, amounts due to related parties amounted to N19.5 billion, accrued expenses amounted to N5.3 billion, and trade and other payables amounted to N2.7 billion among other line items.

Cadbury Nigeria Plc

The chocolate manufacturer’s trade and other payables amounted to N24.5 billion in H1’23 from N20.5 billion recorded in the same period of 2022.

Due to related parties amounted to N10.01 billion, Trade payable amounted to N9.01 billion, and accrued expenses, among other things.

Champion Brew

The indigenous beer maker accounted for N4.23 billion as it trade and other payables in from N2.2 billion recorded in the same period of 2022.