Nigerian companies generate N1.3 trillion in free cash flows in 9 months

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The major listed companies operating in Nigeria reported a cumulative cash flow of N1.307 trillion in the first 9 months between January to September 2021.

Based on the data sourced by our Nairalytics research unit, the N1.307 trillion in cash flows generated thus far through September 2021 is 3.5% higher compared to N1.262 trillion of free cash flow generated same period last year.

Notably, the data scope covers Nigerian quoted companies who earn over 90% of their revenues in Nigeria across various sectors including Cement manufacturers, Brewers, Conglomerates, Construction companies, Oil and gas firms.

Why does this matter?

Cash flow from operations represents the actual cash generated by a business from sales after deducting operating expenses. It is a critical aspect of a company’s finances especially as it demonstrates how much cash an organization can generate from its regular business to facilitate operations, settle debts, invest in capital expenditure as well as pay shareholders dividends.

This huge surplus in operating cash flows by Nigerian companies is extremely remarkable especially given the tumultuous 2021 headwinds such as rising cost of input materials, lack of access to forex, low purchasing power and insecurity threatening to erode profits and empty their coffers.

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However, Nigerian companies have demonstrated continued resilience by posting stronger than expected revenue growth whilst implementing pricing adjustments to fuel this rise in operating flows generated for the period under review.

On a net basis, the companies also spent N671.3 billion and N729.0 billion on investing and financing activities respectively in the first 9 months of 2021.

  • This compares to N539.8 billion and N283.2 billion respectively for the corresponding period a year earlier.

Note that net cash flow from investing relates to capex such as property plant and equipment while net cash flow from financing includes net borrowings and dividend payouts.

  • Also remarkable is that the companies also retained a higher cash pile of N1.2 trillion as at September 2021 compared to the N1.1 trillion cumulative cash balance held same period last year.

More Revenue Less CashFlows

Positive operating cash flow is considered a major indicator of a business’s performance as it is often a preferred indicator versus revenues and profits. Especially for investors seeking dividend payouts. Analysts frequently utilize “Operating cash flow margin,” a measure of cash from operations as a percentage of revenues, as a benchmark for how well companies can convert their revenues into cash.

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Based on the data collated by Nairalytics, operating cash flow margin reduced to 21% as at September 2021, compared to 27% the same period last year.

  • Nairametrics had earlier reported that companies’ generated revenues of N4.69 trillion and N5.9 trillion in 2020 and 2021 respectively. This reduction in operating cash flow margins suggest the companies struggled to convert more of their revenues into cash. This is partly attributable to not being able to pass through 100% of cost increases to consumers.

Interestingly, operating cash flow margins declined across all sectors as most companies struggled to keep up with cost upticks despite jacking up prices. For example, three of the country’s largest cement companies, Dangote Cement, Lafarge and BUA Cement collectively posted an operating cash flow margin of 43.9% compared to 56.2% a year earlier.

  • Dangote Cement, the largest, generated a net operating cash flow of N449 billion out of a revenue of N1 trillion. It was N376 billion and N761 billion respectively in 2020.
  • FMCGs also struggled, falling to 12% operating cash flow margin in 2021 compared to 19% last year.
  • MTN, however, grew its OCF margins to 24.3% from 19%.
  • Julius Berger was the only company on the list with a negative OCF margin after it reported a negative free operating cash flow.
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MTN, Dangote, BUA at the Vanguard

Three of Nigeria’s largest companies, Dangote Cement, MTN and BUA Cement make up about 65% of the total N1.3 trillion cash generated in the period under review.

  • Dangote Cement generated the most cash with about N449 billion generated while MTN came next with N292 billion and BUA with N111.8 billion.
  • BUA Cement however reported a decline in its free cash flows compared to the other two.
  • Consumer goods firms such as Nestle, Dangote Sugar, Flour Mill and Nigerian Breweries also reported robust free cash flows as business picked up during the year
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