• Thursday, May 23, 2024
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BusinessDay

Manufacturers’ debt to suppliers rise amid FX losses

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The total amount of money owed by six listed consumer firms to their suppliers rose by 23.1 percent last year as foreign exchange losses took a toll on their financial performance, according to data compiled by BusinessDay.

The firms are International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, BUA Foods Plc, Dangote Sugar Refinery Plc and Champion Breweries Plc.

The latest audited financial statements of the firms show that their combined trade and other payables increased to N163.6 billion last year from N132.1 billion in 2022. The payables declined by 21.8 percent in 2022 from N169 billion in 2021.

Trade payables, also called trade accounts payable, are the money owed by a business for goods and services bought on credit.

The FX losses recorded during the period greatly impacted the firms’ ability to meet their obligations, said Oluebube Nwosu, a consumer goods analyst at Vetiva Capital.

“As most of these firms buy their products from outside the country, they are exposed to currency risk which fluctuates over time,” he said.

Since President Bola Tinubu announced the removal of petrol subsidies during his inauguration on May 29, petrol prices have more than tripled to N600, while the value of the naira has plunged following the floating of the currency.

The Central Bank of Nigeria in June merged all segments of the foreign exchange market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The official exchange rate fell from N463.38/$ to N1,230.6/$ as of Monday. At the parallel market, the naira is being traded at around 1,240/$ as against 762/$ before the FX reform.

“Manufacturers depend on imported raw materials. The shortage of FX led to a rapid increase in the prices of the commodities beyond what their financial records can sustain,” Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said.

He said apart from FX losses, the firms were affected by soaring energy costs as a result of the removal of fuel subsidy. “The cost of energy, logistics, and supply chain distributions dampened their profits which impacted the firms’ ability to meet up obligations to their suppliers.”

Data from the National Bureau of Statistics shows that Nigeria’s headline inflation rate rose for the 15th consecutive time in March to 33.2 percent from 31.7 percent in the previous month.

Food inflation, which constitutes 50 percent of the inflation rate, rose to 37.91 percent from 35.41 percent.

The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s most populous nation increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.

Champion Breweries’ trade and other payables recorded the highest growth of 245.4 percent to N1.9 billion from N592 million, while that of BUA Foods rose by 97.5 percent to N7.9 billion.

Dangote Sugar Refinery saw an increase of 81.3 percent to N13.6 billion; NASCON, 55 percent to N1.3 billion; International Breweries, 20.3 percent to N53.8 billion; Unilever, 18 percent to N, Nigerian Breweries, 15.2 percent to N77.8 billion; Cadbury, 8.8 percent to N8.6 billion and Nestle (two percent).

Nigerian Breweries reported an after-tax loss of N106.3 billion last year; and Dangote Sugar, N73 billion, Cadbury, N19 billion and International Breweries, N19 billion. Champion Breweries’ profit declined to N370 million.

BUA Foods however reported a profit of N112 billion, up from N91.3 billion.

“As prices of goods produced by the FMCG companies have gone up, consumers who buy from them can no longer afford these products, with naira devaluation and inflation impacting their income,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.

“With salaries not increasing, disposable income has become eroded so they buy less of FMCGs that they used to buy before, and when these organisations don’t sell enough, it is always difficult for them to pay their vendors. That’s one of the major reasons why we have a lot of backlogs in their trade payables,” he added.

The Manufacturers Association of Nigeria said in a report last year that manufacturing activities continued to suffer due to the persisting scarcity of FX and further depreciation of the naira.

The association added that the lingering FX scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilisation since the importation of non-locally produced critical input has become a nightmare.

The tough business environment is also pushing multinationals to exit Africa’s biggest economy as Procter & Gamble, GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi and Bolt Food announced plans to leave the country this year.