Nigerian companies generate 1.3 trillion naira in free cash flow in 9 months


Major listed companies operating in Nigeria reported a cumulative cash flow of 1.307 trillion naira in the first 9 months between January and September 2021.

Based on data collected by our Nairalytics research unit, the 1,307 trillion naira of cash flow generated through September 2021 is 3.5% higher than the 1,262 trillion naira of free cash flow. generated at the same time last year.

Notably, the scope of the data covers Nigerian listed companies that make over 90% of their revenue in Nigeria from various industries, including cement manufacturers, brewers, conglomerates, construction companies, oil and gas companies.

Why is this important?

Operating cash flow represents the actual cash generated by a business from sales after deducting operating expenses. This is an essential aspect of a company’s finances, especially since it demonstrates how much cash an organization can generate from its regular activities to facilitate operations, settle debts, invest in capital expenditures. and pay dividends to shareholders.

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

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

On a net basis, companies also spent 671.3 billion naira and 729.0 billion naira on investing and financing activities respectively in the first 9 months of 2021.

  • This compares to 539.8 billion naira and 283.2 billion naira respectively for the corresponding period a year earlier.

Note that net investing cash flow relates to capital expenditures such as property, plant and equipment, while financing net cash flow includes net borrowings and dividend payments.

  • It is also noteworthy that the companies also maintained a higher cash position of N12 trillion in September 2021 compared to the cumulative cash balance of N11 trillion held in the same period last year.

More income less cash flow

Positive operating cash flow is considered a major indicator of a business’s performance, as it is often a preferred indicator relative to revenue and profit. Especially for investors looking for dividends. Analysts frequently use “operating cash margin,” a measure of cash flow from operations as a percentage of revenue, as a benchmark to determine how well companies can convert revenue into cash.

Based on data collected by Nairalytics, the operating cash margin was reduced to 21% in September 2021, down from 27% in the same period last year.

  • Nairametrics previously reported that business revenues stood at 4.69 billion and 5.9 billion naira in 2020 and 2021 respectively. This reduction in operating cash margins suggests that companies have struggled to convert more of their income to cash. This is partly due to the inability to pass 100% of cost increases on to consumers.

Interestingly, operating cash margins have declined across all industries as most companies have struggled to keep up with cost increases despite rising 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% versus 56.2% a year earlier.

  • Dangote Cement, the largest, generated a net operating cash flow of 449 billion naira on a turnover of 1 trillion naira. It was respectively 376 billion naira and 761 billion naira in 2020.
  • FMCGs also struggled, falling to 12% operating cash margin in 2021 from 19% last year.
  • MTN, however, increased its OCF margins to 24.3% from 19%.
  • Julius Berger was the only company on the list with a negative OCF margin after reporting negative free operating cash flow.

MTN, Dangote, BUA at the forefront

Three of the largest Nigerian companies, Dangote Cement, MTN and BUA Cement account for around 65% of the total cash of 1.3 trillion naira generated during the period under review.

  • Dangote Cement generated the most cash with around 449 billion naira, while MTN came next with 292 billion naira and BUA with 111.8 billion naira.
  • BUA Cement, however, recorded a decrease in its free cash flow compared to the other two.
  • Consumer goods companies such as Nestlé, Dangote Sugar, Flour Mill and Nigeria Breweries also recorded robust free cash flow as activities picked up during the year.

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