Nigerian companies operating in the fiercely competitive consumer goods sector have amassed a record cash pile of N563.2 billion in the first nine months of 2022, according to data from Nairametrics research. This impressive liquidity positions these firms strongly despite an increasingly challenging economic environment marked by inflation and currency volatility.
Nairametrics analyzed financial data from ten of the largest consumer goods companies listed on the Nigerian Exchange, spanning breweries, food processing, and flour milling. The companies include industry heavyweights such as Nestle, Cadbury, Unilever, Dangote Sugar, Nigeria Breweries, Guinness, International Breweries, Flour Mills, BUA Foods, and NASCON.
Despite a highly inflationary context that has dampened consumer spending and driven up operational costs, these firms successfully improved their liquidity levels by strategically leveraging a blend of debt financing, operational cash flows, and vendor management. This feat underscores their resilience and adaptability in a tough market landscape.
Why does this matter? In business, cash is king. The ability of Nigerian consumer goods companies to maintain and grow their cash reserves is a critical indicator of their financial health and sustainability. It offers shareholders insight into potential dividend payouts for 2023 and reassures stakeholders that these companies are unlikely to require government bailouts in the near term.
When adjusted for foreign exchange fluctuations, particularly at the black-market exchange rate of approximately N700 to the dollar (versus N565 at the end of 2021), the total cash balance stands at $804.6 million down from $889 million a year earlier. This reflects the depreciation pressures on the naira but still signals a robust cash position.
The cash accumulation is particularly notable given Nigeria's inflation surge to a two-decade high of 20.7%, forcing consumers to reprioritize spending. Raw material scarcity and the scarcity of foreign exchange essential for importing inputs have compelled companies to innovate in managing supply chains and costs. Many have adopted price increases and "shrinkflation," where consumers pay more for smaller product sizes, especially on essential goods.
Additionally, firms like Unilever and Nestle have turned to their foreign shareholders and related parties for forex needs, often resorting to intercompany loans to navigate currency shortages.
Among the cash-rich leaders in this sector, Dangote Sugar tops the list with a cash balance of N169.7 billion as of September 2022, up from N103 billion the previous year. Nestle follows closely with N107.1 billion, and Unilever recorded N63.9 billion, a significant increase from N69.2 billion reported at the end of 2021.
The sources of this cash growth are twofold: operational cash generation and fresh financing. For example, Nestle secured an additional N12.4 billion from financing activities, while Dangote Sugar raised N12.3 billion through intercompany loans. Nigeria Breweries and Flour Mills also tapped into new financing lines totaling N54.7 billion and N77 billion respectively during the period.
How are these funds being deployed? Typically, cash is allocated toward working capital, dividend payments, refinancing debt, and capital expenditures (Capex). Dangote Sugar, for instance, used part of the N88 billion generated from operations to pay N12.1 billion in dividends and invest N13.1 billion in capital projects, while preserving a healthy cash balance. Nestle, with a more modest operational cash flow of N5.5 billion, supplemented its spending through net fresh loans to support both Capex and dividends.
Looking ahead, Nairametrics suggests the strong cash reserves will continue to underpin capital investments amid economic uncertainty. However, firms face growing pressure to settle vendor payments and prepare for intensified competition, especially with an influx of cheaper foreign goods.
Most importantly, much of this cash is held in foreign currency to hedge against exchange rate volatility a prudent strategy in Nigeria’s fluctuating forex landscape.
In summary, the surge in operating cash flows among Nigerian consumer goods firms not only highlights their financial resilience but also sets the stage for sustained investment and shareholder returns despite daunting economic headwinds.