Nigerian consumer goods firms are not efficient in transforming operations into cash as a low consumer purchasing power continues to undermine sales.
According to the 2018 audited financial statement of nine largest firms, combined average cash operating margin fell to 11.29 percent in December 2018 from 15 percent the previous year.
Operating cash flow margin is a cash flow ratio which measures cash from operating activities as a percentage of sales revenue in a given period.
Operating cash flow margin measures how efficiently a company converts sales into cash. The higher the ratio the better as it indicates that a firm has the financial strength to pay debt and fund future expansion plans.
Consumer goods firms are the hardest hit from a sluggish economic recover as low consumer purchasing power, decrepit infrastructure, and taxes have battered gross profit margins.
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Sales have fallen to an all-time low since they can no longer hike the price of key products like they did in 2017 to fend the effect of rising inflation and severe dollar shortage.
Nigerian Breweries cash operating margin fell to 19.13 percent in December 2018 from 30.05 percent as at December 2017. Net cash operating activities dipped by 39.67 percent to N63.12 billion in the period under review from N103.12 billion the previous year.
The decision by Federal Government to hike excise duties on alcoholic drinks is seen as exacerbating the already anemic position of players in the industry.
The tax increases is hitting revenue as companies will not be able to pass on the burden of the tax on the final consumer.
Nascon Allied Industries Plc’scash margin fell to 3.83 percent in December 2018 from 51.12 percent as at December 2017. Net cash from operating activites dipped by 98.63 pecentto N986.40 million in the period under review from N13.83 billion the previous year.
Dangote Flour Mills Plc’s cash margin fell to 0.38 percent in the period under review from 2.65 percent the previous year. Net cas from operating activities reduced by 86.59 percent to N432.46 million in December 2018 from N3.30 billion the previous year.
According to a filing on the Nigerian Stock Excgnage (NSE), Olam International, a leading food and agri-business company, has offered to acquire full ownership of the miller for N130 billion.
Dangote Sugar’s cash margin fell to 23.01 percent in the period under review from 26.22 percent the previous year. Net cash from operating activities were down 35.43 percent To N34.61 billion as at December 2018.
Companies had raised capital via a right issue to settle debt, and the strategy has yielded fruit as evidenced in a reduction interest expense, but margin still remained pressured.
BALA AUGIE
