The total trade and other payables of nine fast-moving consumer goods firms in Nigeria rose by 23 percent in the first nine months of 2023 on the back of rising inflationary pressures, a BusinessDay analysis shows.
The firms analysed are Champion Breweries, Cadbury Nigeria, NASCON Allied Industries, International Breweries, Unilever Nigeria, Nigerian Breweries, Dangote Sugar Refinery, Nestle Nigeria, and BUA Foods.
According to the firms’ financial statements, their combined trade and other payables increased to N1.22 trillion in the first nine months from N986.3 billion in the same period of last year.
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.
They 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: BUA Foods, Dangote Sugar lead consumer firms in shareholders’ funds
Sunmisola Ikoli-Oluwo, Equity Research & Business Strategy CSL Stockbrokers said, “One of the major contributors to the performance of payables in the FMCG sector is based on the increase of accruals.”
“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.
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.
Double-digit inflation is eating away at consumer wallets, while businesses grapple with skyrocketing raw materials and a volatile currency environment.
“Business confidence in Nigeria has declined in recent months, due to the challenging economic environment. The depreciation of the Naira and high energy prices have increased the cost of production, making businesses postpone investments,” analysts at CSL said in a note.
Recently, Procter & Gamble, a multinational consumer goods seized its production operation in Nigeria and now operates on an import-only business model based on the harsh macroeconomic conditions of the country.
Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries.
BusinessDay earlier reported that this development shows a trend where manufacturers in the FMCG industry are either leaving or reducing operations in Nigeria due to factors such as rising interest rates, high inflation and foreign exchange volatility.
Ikoli-Oluwo of CSL Stockbrokers noted that as 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 profits will fall.
The Tinubu administration’s reforms including the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, pushed the inflation rate to the highest level in 18 years.
Nigeria’s annual inflation rate, a measure of the general price level, rose to an 18-year high of 27.33 percent in October from 26.72 percent in the previous month, according to the National Bureau of Statistics (NBS).
Data sourced from NBS showed consumer price index report for food and non-alcoholic beverages contributed the most (13.84 percent) to the increase in the headline index, followed by housing water, electricity, gas and other fuel (4.47 percent), clothing and footwear (2.04 percent), transport (1.74 percent), furnishings and household equipment and maintenance (1.34 percent) and education (1.05 percent).
The naira also has plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 percent against the dollar in June.
“Moreso, insecurity challenges in certain parts of the country also continue to disrupt supply chains leading to shortages and price increases. Manufacturing companies have had to reduce the production of goods, resulting in dwindling output and new orders in November 2023, “ analysts at CSL added.
The latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed the headline index dropped to the lowest in eight months of 48.0 in November 2023 from 49.1 in the previous month, marking the second straight month of contraction.
Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
“Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges,” the report said.
For companies seeking to cut production expenses and mitigate currency risks, analysts at CSL recommend implementing a backward integration strategy.
“To reduce the cost of production, we expect many companies to pursue backward integration schemes to reduce their exposure to foreign currencies. Many companies in the consumer goods sector have already begun to adopt this approach and have started to produce many of their raw materials locally. Some others are also exploring the adoption of cheaper energy sources for production,” Analysts at CSL said
In the near term, however, we believe PMI readings will remain weak until effective measures are employed by the government to encourage business activities.
Firms analysis
Dangote Sugar Refinery
The sugar manufacturer experienced a year-on-year growth in trade and other payables of 74.4 percent reaching N470.4 billion in the first nine months of 2023 from N293.2 billion recorded in the same period of 2022.
Letter of credit accounted for the most amounting to N407.1 billion, followed by accruals and sundry creditors amounting to 34.83 billion, among other things.
Dangote Sugar’s at the end of the period recorded a loss of N27.02 billion from a profit of N24.83 billion recorded in the same period of 2022.
Read also: Consumer goods firms’ income tax expense grows 44% to N43.6bn
Nigeria Breweries
The beer maker followed in second place with its trade and other payables amounting to N249.6 billion in the period under review from N206.1 billion recorded in 2022.
The firm recorded a loss after tax amounting to N57.19 billion in the period under review from a profit of N14.76 billion recorded in 2022.
Nestle Nigeria
The food and beverage manufacturer saw a decline in its trade payables which amounted to N172.4 billion, up from N170.1 billion recorded in the same period of 2022.
Nestle Nigeria recorded a loss after tax amounting to N43.06 billion from a profit of N40.15 billion recorded in 2022.
International Breweries
International breweries saw their trade and other payables amount to N150.2 billion from N144.3 billion recorded in the same period of 2022.
The beer maker recorded a loss after tax amounting to N28.55 billion compared to a loss of N2.81 billion recorded in 20022.
BUA Foods
Bua Food recorded an increase in its trade and other payables amounting to N62.1 billion in the first nine months from N62.02 billion recorded in the same period of 2022.
Withholding/ Value Added Tax Payables accounted for the most amounting to N49.7 billion, followed by trade creditors/ other current liabilities which amounted to N12.2 billion.
Bua Food saw its profit after tax increase to N105.6 billion from N68.76 billion recorded in the same period of 2022.
Unilever Nigeria
The manufacturer of food ingredients and home and personal care products saw its trade payable increase to N60.68 billion from N56.5 billion.
Unilever Nigeria recorded N1.67 billion as its profit after tax from a loss of N348 million recorded in the same period of 2022.
NASCON Allied Industries
National Salt Company Nigeria Plc (NASCON), recorded a marginal increase in its trade and other payables amounting to N30.5 billion in the first nine months from N28.5 billion in the same period of last year.
Under its trade and other payables, amounts due to related parties amounted to N26.03 billion, accrued expenses amounted to N2.05 billion, and trade and other payables amounted to N1.4 billion among other line items.
NASCON’s profit after tax amounted to N11 billion in the period under review from N2.88 billion recorded in the same period of 2022.
Read also: Naira devaluation drags consumer firms as loss per share mount
Cadbury Nigeria
The chocolate manufacturer’s trade and other payables amounted to N22.12 billion in the first nine months from N23.46 billion recorded in the same period of 2022.
Due to related parties amounted to N10.17 billion, Trade payable amounted to N6.52 billion, and accrued expenses, among other things.
Cadbury Nigeria recorded N10.24 billion as its loss after tax compared to a profit of N2.82 billion recorded in the same period of 2022.
Champion Breweries
The indigenous beer maker accounted for N4.02 billion as its trade and other payables in from N2.16 billion recorded in the same period of 2022.
The beer maker recorded a loss after tax of N91.48 million recorded in the same period of 2023 from a profit of N1.78 billion recorded in the same period of 2022.
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