In just nine months, Nigerian businesses generate N1.3 trillion in free cash flow

Between January and September 2021, the major listed companies operating in Nigeria reported a cumulative cash flow of N1.307 trillion.

The N1.307 trillion in cash flows generated thus far through September 2021, according to data sourced by our Nairalytics research unit, is 3.5 percent higher than the N1.262 trillion in free cash flow generated during the same period last year.

The data set includes Nigerian quoted companies that earn more than 90% of their revenues in the country, including cement manufacturers, brewers, conglomerates, construction companies, and oil and gas companies.
After deducting operating expenses, cash flow from operations represents the actual cash generated by a business from sales. It is an important aspect of a company’s finances because it shows how much cash an organization can generate from its regular operations to help with operations, pay debts, invest in capital expenditures, and pay dividends to shareholders.

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This huge operating cash flow surplus by Nigerian companies is remarkable, especially given the tumultuous 2021 headwinds of rising input material costs, lack of access to forex, low purchasing power, and insecurity, all of which threaten to erode profits and empty their coffers.

Nigerian companies, on the other hand, have shown continued resiliency by reporting higher-than-expected revenue growth while making pricing adjustments to support the increase in operating cash flows generated during the period under review.

In the first nine months of 2021, the companies spent a total of N671.3 billion and N729.0 billion on investing and financing activities, respectively.

In the same period a year ago, the figures were N539.8 billion and N283.2 billion, respectively.
It’s important to note that net cash flow from investing refers to capital expenditures like property, plant, and equipment, whereas net cash flow from financing refers to net borrowings and dividend payouts.

In addition, the companies had a higher cash pile of N1.2 trillion as of September 2021, compared to a cumulative cash balance of N1.1 trillion at the same time last year.
More Cash Flows minus Revenue
Positive operating cash flow is a major indicator of a company’s performance, and it is frequently preferred over revenues and profits. Particularly for dividend-seeking investors. Analysts frequently use “operating cash flow margin,” a measure of cash from operations as a percentage of revenues, as a metric for how well companies can convert revenue into cash.

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According to Nairalytics, the operating cash flow margin fell to 21% in September 2021, down from 27% the previous year.

Companies generated revenues of N4.69 trillion and N5.9 trillion in 2020 and 2021, respectively, according to Nairametrics. The companies’ operating cash flow margins have shrunk, implying that they have struggled to convert more of their revenues into cash. This is due in part to the inability to pass on 100 percent of cost increases to consumers.
Surprisingly, operating cash flow margins fell across all industries as most businesses struggled to keep up with cost increases despite raising prices. For example, Dangote Cement, Lafarge, and BUA Cement, three of the country’s largest cement companies, reported an operating cash flow margin of 43.9 percent, down from 56.2 percent a year ago.

Out of a revenue of N1 trillion, Dangote Cement generated a net operating cash flow of N449 billion. In 2020, they were N376 billion and N761 billion, respectively.
FMCGs also struggled, with an operating cash flow margin of only 12% in 2021, down from 19% last year.
MTN, on the other hand, increased its OCF margins from 19 percent to 24.3 percent.
After reporting negative free operating cash flow, Julius Berger was the only company on the list with a negative OCF margin.
MTN, Dangote, and BUA are at the forefront of the industry.
Dangote Cement, MTN, and BUA Cement, three of Nigeria’s largest companies, account for about 65 percent of the total N1.3 trillion cash generated during the period under review.

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Dangote Cement raked in the most money, with N449 billion, followed by MTN with N292 billion and BUA with N111.8 billion.
BUA Cement, on the other hand, saw a decrease in free cash flows when compared to the other two.
As business picked up during the year, consumer goods companies such as Nestle, Dangote Sugar, Flour Mill, and Nigerian Breweries reported strong free cash flows.