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Consumer Goods Firms’ Cash Deteriorates on FX Scarcity

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Consumer goods firms are unable to effectively convert sales to cash as they are making deposits for foreign exchange with banks for the purposes of importation of raw materials to meet pr0duction.

The operating cash flow margins fell to 18.79 percent in September 2022 from 22.57 percent the previous year, according to MoneyCentral calculations.

The combined operating cash flow of the consumer goods firms stood at N306.22 billion as at September 2022, which is 15.88 percent lower than 2021’s N364.02 billion.

They collectively generated N228.60 billion in net operating cash flow from activities as at September 2022, which is 36.05 percent lower than 2021’s N357.51 billion.

Analysts prefer the cash margin as a measure of financial strength of a firm rather than the net profit margin because it is not easy to manipulate cash. A strong cash flow position indicates an entity can pay up its debt, reward shareholders in the form of dividend and fund future expansion plans.

Some of these firms have relaxed credit policies to push volumes and grow turnover, which is one of the sources of cash flow constraints that increases their operating cash flow conversion circle.

“A lot of them are making deposits for foreign exchange with lenders to stay on queue for foreign exchange allocation for the importation of their inputs and sometimes they try to import raw materials in advance to avoid getting stuck,’’ said an analyst who does not want his name mentioned.

“In addition, they are likely to limit debt levels if they can avoid it because of the interest rate environment and as such they may be limiting their debt to critical need for foreign exchange,” said the analyst.

Nigerian Breweries saw operating cash flow dip by 70.05 percent to N27.21 billion as at September 2022 as cash margin fell to 8.16 percent in 2022 from 34.74 percent the previous year.

International Breweries’ cash from operating activities reduced by 50.78 percent to N20.37 billion as at September 2022 as cash margin fell to 12.70 percent in the period under review from 32.75 percent as at September 2021.

Guinness Nigeria’s cash flow from operating activities were down 56.46 percent to N4.68 billion as at September 2022 as cash margin reduced to 8.86 percent in September 2022 from 22.66 percent the previous year.

Some firms burned cash to acquire property plants and equipment even amid dimming macro-economic outlook.

Capital expenditure spending for these firms hit N150.22 billion as at September 2022, according to data gathered by MoneyCentral.

Some manufacturers fret that the tenacious scarcity of foreign exchange for businesses to conduct their operations is now threatening their existence.

“Because we don’t have a very big raw materials base in this country. “We cannot source the foreign exchange to bring in the raw materials, because the dollars have gone too high,” said Mansur Ahmed, President, and Manufacturers Association of Nigeria (MAN).

Piling inventories and receivables validates the impact of scotching inflation on consumer spending as consumer goods firms struggle with subdued volume growth amid increased cost of manufacturing that dampens investment while the economic growth slows.

Annual inflation in Nigeria climbed to 21.47 percent in November from October’s rate of 21.09 percent, accelerating for the 10th straight month as food prices surged, the statistics bureau.

Nigeria’s gross domestic product (GDP) grew by 2.25 percent year-on-year in Q3 2022, marking the slowest growth since the Covid-19 pandemic.

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