Consumer firms face dividend payment dilemma as retained earnings plunge

The retained earnings of consumer firms operating in Africa’s largest economy have plunged by 86 percent in the past year, raising concerns about the sustainability of their dividend payments.

The FMCG sector, renowned for its swift turnover and consistent expansion, encountered a setback as seven listed FMCG firms on the Nigeria Exchange Group collectively recorded N37.79 billion as its retained earnings in the first half of 2023 from N277.37 billion recorded in the same period of 2022.

The analysed seven consumer goods firms include; Dangote Sugar Refinery, Nestle Nigeria Plc, Unilever Nigeria Plc, International Breweries, Cadbury Nigeria Plc, Nascon Allied Industries and Nigerian Breweries.

Retained earnings are the amount of net income left over for the business after it has paid out dividends to its shareholders, which is an equity account.

Negative retained earnings often serve as indicators of prolonged financial losses, potentially foreshadowing bankruptcy. Such circumstances may also imply that the company disseminated borrowed funds to shareholders in the form of dividends.

Various factors, ranging from the cash crunch that crippled the economy in the first quarter to the uncertainties tied to the presidential election, grappling with inflation, heightened Central Bank’s interest rates to counter inflation, elevated input costs, and foreign exchange losses stemming from the unification of foreign exchange markets, have all contributed to this challenging environment.

Firm Analysis

Unilever Nigeria

Unilever Nigeria, one of the nation’s most historic manufacturing enterprises, recorded a retained earnings surge of N9.20 billion in the first half of 2023, a rise from the N5.11 billion recorded during the same period in 2022.

Cadbury Nigeria

The confectionery manufacturer recorded negative retained earnings of N6.06 billion in the half of 2023, contrasting with positive retained earnings of N8.48 billion recorded in the first half of 2022.

International Breweries

International Breweries, a significant player in the brewing industry, reported negative retained earnings of N81.89 billion in the first half of 2023, an increase from negative N36.34 billion recorded in the first half of 2022.

Nigeria Breweries

Nigerian Breweries recorded a dip in retained earnings, recording N32.59 billion in the first half of 2023 compared to N99.56 billion recorded in the same period of 2022.

Dangote Sugar Refinery

The sugar manufacturer recorded a decrease in retained earnings to N112.64 billion in the first half of 2023, down from N158.84 billion in the same period of 2022.

Nascon Allied Industries

The salt arm of Dangote allied companies recorded an increase in its retained earnings to N20.45 billion in the first half of 2023 from N13.34 billion recorded in the same period of 2022.

Nestle Nigeria Plc

Nestle Nigeria Plc recorded negative retained earnings of N49.14 billion in the first half of 2023, diverging from the positive retained earnings of N28.37 billion in the same period of 2022.