Three drugmakers’ borrowings rise to N28bn on rate hikes

THE combined loans and borrowings of three listed pharmaceutical firms in Nigeria rose to N28.4 billion last year from N20.5 billion in 2022, according to Businessday analysis.

The manufacturers’ latest financial statements also show that their total loans and borrowings rose by 28.5 percent within a year.

The companies analysed are Neimeth International Pharmaceuticals Plc, May & Baker Nigeria Plc, and Fidson Healthcare Plc.

The total obligations were collated from their current liabilities and non-current liabilities. The companies’ total current liabilities were N20.5 billion from N11.0 billion and non-current was N7.8 billion from N9.5 billion.

Further analysis of the statement shows that Fidson Healthcare reported the highest amount of loans and borrowings of N17.7 billion, followed by May & Bakers Nigeria with N6.64 billion and Neimeth International Pharmaceuticals with N4.08 billion.

“The implication of borrowing at the current interest rate is negative from an interest expense standpoint which also has some impact on the Nigerian economy because the high-interest rate environment will lead to passing the cost increase to consumers,” said Tajudeen Ibrahim, director of research and strategy at Chapelhill Denham.

“Due to rising interest rates, businesses pass the high cost of borrowing on to their consumers which is partly fuelling inflation,” he added.

The benchmark interest rate, also known as the Monetary Policy Rate, has been raised by 725 basis points to 18.75 percent in May last year from 11.50 percent in April 2022.

Last month, the Central Bank of Nigeria raised the MPR for the second straight time by 200 basis points to 24.75 percent in a bid to fight inflation. In February, the apex bank increased the interest rate by 400 basis points to 22.75 percent.

Since President Bola Tinubu announced the removal of petrol subsidies during his inauguration on May 29, petrol prices have more than tripled to N600, while the value of the naira has plunged following the floating of the currency.

The apex bank last June merged all segments of the foreign exchange market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The floating of the naira increased the official exchange rate from N463.38/$ to N 1,309.9/$ on Thursday while the parallel market rate stood close to at N1,400/$.

The high cost of sourcing FX and petrol prices pushed Nigeria’s headline inflation rate to a record high of 33.20 percent in March, up from 31.70 percent in February, according to the National Bureau of Statistics.

A recent report by SBM Intelligence, a research consulting and data analytics firm, titled ‘Paying the price on health’, said between 2019 and 2023, a pack of 500-milligram Ampiclox capsules recorded the highest jump, with the cost price increasing by 1,390 percent and the selling price increasing by 1,100 percent.

It said a pack of 500-milligram Amoxil capsules grew the fastest among all the medicines analysed, with the selling price jumping by 456 percent.

“Over the years, the rate of increase in the cost price was faster than the rate of increase in the selling price. This signals that a larger percentage of the proceeds from the sales of medicines are returned to the manufacturers, giving the retailers less wiggle room to expand their businesses,” the report said.

In the SBM report, Boladele Silva, a pharmaceutical professor at the University of Lagos, said that Nigeria’s pharmaceutical industry is highly exposed to shocks from foreign exchange volatility.

“In Nigeria, what we have are packaging hubs. The active pharmaceutical ingredients and most excipients used by the manufacturers are imported. That

nd makes them very vulnerable to economic shocks,” he said.

Africa’s most populous nation relies heavily on imported drugs, active pharmaceutical ingredients, and equipment used in drug manufacturing from China, India, Malaysia, and the Netherlands.

Pharma West Africa, a major pharmaceutical exhibition in Africa, said that over 70 percent of medicines in Nigeria are imported, with medicines accounting for a chunk of the country’s total healthcare spend of $10 billion.

Capacity utilisation in the industry is below 50 percent, according to industry players, who complain that the lack of a reliable petrochemical industry in the country means most raw materials are imported.

“Nigerian manufacturers suffer from poor infrastructure and low patronage, which make them uncompetitive in both local and global markets,” they said.

Analysis of individual firms Fidson Healthcare

Fidson’s after-tax profit declined to N3.6 billion in 2023 from N4.19 billion in 2022. The company’s cash flow from operations also dropped to N1.5 billion from N3.7 billion. It reported N17.7 billion in total loans and borrowings, up from N11.4 billion. The company’s interest-bearing loans and borrowing were incurred from current and non-current liabilities which amounted to N6.1 billion and N11.6 billion from the CBN and other financial institutions.

Its short-term borrowings are current and are expected to be settled within 12 months of the reporting date. The loan was secured from Wema Bank, Parallex Bank, Lotus Bank, and First City Monument Bank with an Interest rate of 20 percent.

The company’s statement disclosed that part of the loans and borrowing reported in 2023, was used to offset the previous year’s capital utilisation and working capital expenditure.

May & Baker Nigeria

May & Baker’s after-tax profit dropped to N1.08 billion in 2023 from N1.49 billion in 2022. The company’s ability to generate profit was evidenced in its cash from operations dropped by 64 percent to N754 million.

Its loans and borrowings rose to N6.64 billion from N5.5 billion.

The company’s loans and borrowings were incurred from current obligations due within one year and non-current liabilities due after one year amounted to N5.1 billion and N3.2 billion from the CBN and other financial institutions.

Analysis of the liability includes CBN intervention funds, short-term import facility, and bank overdrafts - which were used to finance/expand the company’s new and existing projects.

Neimeth International Pharmaceuticals

Neimeth International Pharmaceuticals’ after-tax loss widened to N2.8 billion in 2023 from N406 million in 2022. The company’s cash from operations declined to a negative of N773 million from a positive N165 million.

Its loans and borrowings rose to N4.08 billion from N3.5 billion.

The company’s loans and borrowings were incurred from current obligations due within one year and non-current liabilities due after one year which amounted to N3.8 billion and N288 million in 2023 from the CBN and other financial institutions.

According to the financial statement, the loan facility was used to augment the company’s working capital requirement ranging from raw material purchases to purchasing equipment and other projects during the period.