The largest listed non-financial Nigerian companies have generated free cash flow of N784.24 billion as at September 2020, according to data compiled by MoneyCentral.
This means they have the financial strength to pay creditors or dividends to investors.
However, the amount is 2.13 percent lower than 2019’s N815.62 billion as the precipitous drop in the price of crude oil and the coronavirus pandemic disrupted economic activities.
There was also buildup in inventories as valued customers weren’t honoring their obligations, resulting in receding revenue for most firms.
Analysts say companies are not under any major threat, and that these entities have the financial ammunition to surmount the macroeconomic headwinds and reward shareholders.
The largest cash flow generator in Nigeria is MTN Nigeria Plc, as the largest telecommunications giant generated free cash flow of N376.05 billion as at September 2020, which represented a 20.12 percent increase from 2019 as it continues to roll out its broadband network across the country.
The lockdown imposed by the government to curb spread of the virus was a boon for MTN Nigeria which saw an uptick in data usage because there was a surge in video calls and conferencing apps like zoom.
Dangote Cement, the largest listed company by market capitalisation in the country and largest producer of the building material saw free cash flow surge by 117.16 percent to N154.26 billion in the period under review, as the cement maker benefitted from the gradual reopening of the economy that added impetus to construction activities.
Flour Mills Nigeria, the largest miller in Africa’s largest economy sits on a record cash of N29.88 billion in the period under review as an increase in sales on the back of border closure and cost cut catapulted earnings before interest and taxation (EBIT).
However, BUA Cement recorded negative free cash flow of N52.10 billion, from a positive position of N59.19 billion in 2019.
The cement maker-which merged two of its subsidiaries and went public last year to become one of the most capitalized companies- embarked on aggressive capital expenditure spend that overwhelmed its cash position.
Seplat Petroleum Development Company Plc, the largest listed upstream oil and gas firm recorded a 48.15 percent reduction in free cash flow to N102.13 billion as at September 2020, as the drop in crude oil price that stoked impairment charge on assets dealt a great blow on earnings.
Unilever Nigeria and International Breweries recorded negative free cash flow of N335.91 million and N4.25 billion respectively. Both firms are reeling from weak consumer purchasing power, rising cost of production, foreign exchange scarcity and decrepit infrastructure.
In the corporate finance parlance, however, a company with negative free cash flow can tap the equity or debt market to pay dividends and fund its future expansion plans.
More importantly, companies also have to strengthen their working capital and may initiate cost cutting strategy to magnify margins. This is because the road to economic recovery is unpredictable, given a lack of transformation policy on the part of the present administration.
Nigeria’s gross domestic product shrank 3.6 percent in the three months through September from a year earlier, as a lockdown to contain the Covid-19 outbreak, lower oil prices and rampant dollar shortage weighed on output.
The International Monetary Fund (IMF) forecasts that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020. But the global lender expects Nigeria’s economy to rebound by 2.6 percent in 2021.