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Consumer Goods Firms to Resume Robust Dividend Payment as Cash Flow Strengthens

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Consumer goods firms who floundered during the coronavirus pandemic are poised for resumption of robust dividend as cash flows have strengthened on the back of gradual reopening of the economy.

The combined cash flow from operating activities of the largest and the most liquid firms on the NGX Exchange spiked by 130.10 percent to N309.97  billion from N134.71 billion the previous year, according to data compiled by MoneyCentral.

An improvement in cash from operating activities shows there has been a rebound in receivables from customers who were not able to patronage firms as the pandemic disrupted the demand and supply side of the market.

 Analysts are of the opinion that managers are now paying more attention to working capital management that is a recipe for solid working capital position.

Interestingly, consumer goods firms are effective in converting sales to cash as the industry average cash margins increased to 24.37 percent in June 2021 from 11.82 percent the previous year, according to MoneyCentral calculations.

Combined net income surged by 128.32 percent to N53.83 billion in June 2021 from N23.58 billion as at June 2020.

Operating cash flow margin is a cash flow ratio that measures cash from operating activities as a percentage of total sales revenue in a given period.Like operating margin, it is a trusted metric of a company’s profitability and efficiency and its earnings quality.

Guinness Nigeria and Unilever will likely resume dividend payment as it posted a profit of N1.25 billion and 714.78 billion from loss positions of N12.57 billion and N519.21 million respectively.

Few have an aggressive dividend policy, a strategy they have been deploying to woo investors.

For instance, Nestle Nigeria declared a final dividend both (interim and final) of N55.48 billion, out of distributable profit of N39.21 billion. That translates to a dividend payout of 142.25 percent. This indicates the company distributed all earnings as dividend, but scooped cash from retained earnings.

Flour Mills of Nigeria was pretty much conservative as it paid a dividend of N6.77 billion from net income of N24.47 billion.

There is positive prognosis for the industry as macro recovery is seen lifting consumer spending, but marginally.

The Nigerian economy grew stronger in real terms, year-on-year, in Q2-2021 by 5.01 percent year on year (yoy), according to a recent data by the National Bureau of Statistics (NBS).

The International Monetary Fund (IMF) forecast GDP to grow in 2021 by 3.15 percent; Central Bank of Nigeria (CBN), 3.0 percent, Federal Government, 1.1 percent.

The manufacturing subsector continued to show the fastest recovery in the economy’s private sector, reporting the steepest uptick in the period.

However, the Stanbic IBTC headline Purchasing Managers’ Index (PMI) came in at 52.2 in August from 55.4 in July. The performance was the slowest in six months (6), which suggests that the vaccinated optimism that once permeated the global economy might be waning following the recent emergence of the delta variant of the coronavirus.

According to the survey, the period witnessed a tapered expansion in output, new orders, and employment, while there was a loss of momentum in demand which led to a dip in optimism.PMI Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Analysts have caveat that the increases in commodity prices and devaluation of the currency will balloon the cost of production.

The naira hit a record low of 532 to the dollar on the unofficial or black market, while the central bank has devalued the currency three times since March 2020, but the naira has continued to weaken.

The government has to formulate policies that will help remove some of the infrastructure bottlenecks undermining the industry as consumer goods firms spend on average N0.93 to produce N1 of products, leaving very little to cover other expenses and exceptional items.

Put in proper context, the 10 largest firms collectively incurred N1.05 trillion in total production cost as at June 2021, which is 48 percent higher than 2020’s N713.69 billion, according to data gathered by MoneyCentral.

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