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Consumer goods firms battle unpaid bills as receivables rise by 94%

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Sales at some of Nigeria’s biggest consumer goods firms are holding up despite rising inflation and weak purchasing power, the only problem is their customers are taking more time to pay for what they buy.

This is after the combined trade receivables of nine publicly-listed consumer goods firms, analysed by BusinessDay, increased by 94 percent in the first half (H1) of 2023 despite aggregate revenue increasing by 26 percent.

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.

Further findings showed these firms’ aggregate trade receivables, or services on credit, totalled N555.86 billion in the first half of 2023, a 94 percent increase from N286.15 billion in 2022.

Trade receivable is the amount a company has billed to its customer for selling its goods or supplying the services for which the amount has not been paid yet by the customer.

A company’s trade receivables will increase at the time of the sale if it sells goods (and/or services) and permits its customers to pay at a later time.

“What inflation clearly points out is that the customer’s capacity to pay is lower than before. And if a business wants to deliver value to that same customer when their wallet is shrinking, it has to step up by knowing how to do things differently,” Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School (LBS), said.

He said there is only so much a customer can bear and that when inflation continues to rise, it suggests that businesses have to be innovative in their pricing strategies.

“A lot of companies and businesses have been using the cost-plus pricing strategy where you just calculate the inflation rate, put the figure and move one. But now, I think they are beginning to think differently about pricing because of the sustained rise in inflation,” he added.

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In July, Nigeria witnessed its highest inflation rate in nearly 18 years. Recent data released by the National Bureau of Statistics (NBS) showed that headline inflation climbed up for the seventh consecutive month to reach 24.08 percent, from the 22.79 percent recorded in June.

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/$, with the parallel market rate reaching N945/$.

Firms Analysis

Bua Foods Plc

Bua Foods’ trade receivables experienced year-on-year growth of 105 percent, reaching N161.37 billion in the first half of 2023 from N78.58 billion in the same period of 2022.

Further analysis of the firms’ trade receivables, prepayment amounted to N5.08 billion, trade debtors amounted to N0.96 billion, and other receivables amounted to N155.33 billion.

Dangote Sugar Refinery Plc

The sugar manufacturer’s trade and other receivables surged to N148.74 billion in the first half of 2023 from N47.98 billion during the same period in 2022.

Further analysis of the firms, trade and other receivables showed that trade receivables amounted to N7.244 billion, advance payment to contractors amounted to N1.75 billion, other financial assets amounted to N133.06 billion, other receivables amounted to N1.73 billion, among other items.

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Nestle Nigeria Plc

The food and beverage manufacturer reported trade and other receivables totalling N97.46 billion in the first half of 2023, a rise from N73.23 billion in the previous year.

Its advance payment to suppliers accounted for 78.49 percent of its total trade and other receivables amounting to N78.79 billion, trade receivables amounted to N12.15 billion, and other receivables amounted to N6.76 billion.

Nigeria Breweries Plc

The beer maker recorded N61.54 billion as its trade receivables in the first half of 2023, up from N33.99 billion in the corresponding period of 2022.

Nascon Allied Industries Plc

National Salt Company Nigeria Plc (NASCON), recorded N25.19 billion in the first half of 2023, up from N11.21 billion during the same period in 2022.

Trade receivables – related parties amounted to N22.86 billion, trade receivables amounted to N1.38 billion, and advances to suppliers amounted to N386.1 million.

International Brewery Plc

International breweries saw their trade receivables soar to N146.77 billion in the first half of 2023 from N14.76 billion in the same period of 2022.

Unilever Nigeria Plc

The manufacturer of food ingredients and home and personal care products observed recorded a 70.56 percent increase in trade and other receivables, reaching N32.39 billion in the first half of 2023 from N18.99 billion in the previous year.

Its net trade receivables amounted to N4.15 billion, advances and repayment amounted to N8.42 billion, and deposits from import amounted to N10.46 billion.

Cadbury Nigeria Plc

The chocolate manufacturer’s trade and other receivables amounted to N24.49 billion in the first half of 2023, from N6.8 billion in the same period of 2022.

Trade receivables amounted to N4.13 billion, other receivables amounted to N2.9 billion, withholding tax receivables amounted to N292.2 million, and dues from related parties amounted to N417.9 million.

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Champion Breweries Plc

The indigenous beer maker accounted N0.277 billion as its trade and other receivables in the first half of 2023 from N0.61 billion recorded in the same period of 2022.

Outlook

And things could get worse as the inflation is expected to spike further on the back of the removal of subsidy and the unification of the exchange rate which has sent prices higher.

The Bank of America (BOA) has said that at the current trend, inflation may quicken to 30 per cent by the end of the year.

Nigeria’s Gross Domestic Product (GDP) growth slowed to 2.31 per cent in the first quarter (Q1) of 2023 from 3.52 per cent in the fourth quarter of 2022.

The headline PMI remained above the 50.0 no-change mark in June. Although dipping slightly to 53.2 from 54.0 in May, according to Stanbic IBTC’s Purchasing Managers Index report.

The report, which measures the pulse of private sector activity on a monthly basis said that business confidence dipped to a near-record low as intensifying inflationary pressures encouraged companies to expand inventories to try and get ahead of further price increases.

“Input prices increased at the fastest pace since Aug 22, while the rate of selling price inflation accelerated sharply as firms passed higher costs on to their customers,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank.

“Consequently, rates of expansion in output and new orders softened during the month. Notably, business confidence dipped to a near-record low while companies expand inventories to try and get ahead of further price increases.”

Consumer goods firms are not turning over inventory to sales at a faster pace as stock turnover ratio has fallen.

The average inventory turnover ratio reduced to 1.13 or 323 days in March 2023 from 1.87 or 195.19 days the previous year, according to MoneyCentral calculations.

Simply put, it means companies turned over their inventories every 323 days on average during the year.