Brewers are facing short term liquidity problems and operating difficulties as ballooning debt that stricken the balance sheet underscores the urgent need for the injection of fresh capital to salvage these firms from existential crisis.
Investors have been selling off Nigerian Breweries Plc, Guinness Nigeria Plc’s, and International Breweries Plc over liquidity concerns, compounding the woes of companies who are reeling from huge net losses caused by foreign exchange revaluation losses in the aftermath of the abrupt devaluation of the currency.
These firms will have to sell shares or liquidate other assets due to severe illiquidity as the average industry cash ratio was flat 0.14 as at March 2024, according to MoneyCentral’s calculations.
Nigerian Breweries has a cash ratio of 0.079; Guinness Nigeria, 0.28, and International Breweries, 0.052.
The cash ratio is a liquidity measure that shows a company’s ability to cover its short-term obligations using only cash and cash equivalents.
A calculation greater than 1 means a company has more cash on hand than current debts, while a calculation less than 1 means a company has more short-term debt than cash.
Analysts say these firms will have to intensify their working capital strategy such as the management of inventories, receivables, and payables.
However, perhaps more worrisome is that breweries are not riding out the storm as they are laden with huge debts (both long and short term) which exposes them to financial risk.
With finance costs spiking on the back of rising interest rates brought on by continuous aggressive monetary policy of a central bank who seeks to curb red-hot inflation, it may become difficult to service interest on money borrowed. And this exposes them to bankruptcy or being taken over [by creditors.
The average industry debt to equity stood at 1,136 percent as at March 2024, according to data from MoneyCentral.
Nigeria Breweries has a debt to equity ratio of 4,115 percent, Guinness Nigeria, -4776 percent, and International Breweries, 127.15 percent. Guinness’ Debt to equity ratio is negative because it recorded a negative shareholders funds’
These three firms collectively incurred N918.15 billion in debt in their balance sheets, according to data gathered by MoneyCentral.
There are concerns that the removal of subsidies on fuel which significantly depressed consumer spending makes it onerous for sector players to generate enough cash flows to meet their financial obligations.
That is aside from rising inflation that has stolen workers’ wages and impoverished Nigerians, the majority of whom can no longer afford premium products. Of course, spiraling input costs like imported inflation and foreign exchange scarcity had forced companies to hike the price of key products.
Nigeria’s headline inflation rate increased to 33.20 per cent in March 2024, up from 31.70 per cent in February 2024, according to recent data from the National Bureau of Statistics (NBS).
Some firms are re-strategising and shrinking operations to stay afloat amid a challenging environment.
For instance, Nigerian Breweries Plc, mulls a company-wide reorganisation, including the temporary suspension of operations in two of its nine breweries.
The largest brewer in the country acknowledges the persistently challenging business environment, characterized by double-digit inflation rates, naira devaluation, FX challenges, and diminished consumer spend.
 Follow the MoneyCentral Nigeria channel on WhatsApp: Click here!
This is to inform the general public that individuals can now order Dan-gote3xCement directly from the factory at a promo price of 4,300 Naira per bag and RICE for 25,000 naira per 50kg bag. Transportation and offloading is 500 Naira,minimum for purchase is from 100 bags and above. kindly contact Dangote Group Marketing Manager Alhaji Mamman Ali ON O 8 0 6 6 O 7 4 O O 7 for booking and delivery.Note-Delivery takes two days and it’s nationwide.When Strength matters,Choose 3X.PLEASE TELL OTHERS ABOUT THIS WINDOW OF OPPORTUNITY.