Cash Strapped Brewers Have Difficulty Paying Short Terms Bills

The unprofitability of brewers that resulted in negative operating cash flows indicates these companies are having a more difficult time paying their short-term bills as they come due.

This liquidity challenge that cast a pall over brewers’ ability to pay off current debts as they come due means entities may have to sell or liquidate other assets to meet rising daily or short term obligations.

The average cash ratio of Nigerian Breweries Plc, Guinness Nigeria Plc, and International Breweries Plc stood at 0.21 as at December 2023, according to MoneyCentral calculations.

Simply put, they have a combined N150.56 billion in cash and cash equivalent, and N1.05 trillion in total liabilities, which is an industry cash ratio of 0.21.

In general, a cash ratio equal to or greater than 1 indicates a company has enough cash and cash equivalents to entirely pay off all short-term debts. A ratio above 1 is generally favored, while a ratio under 0.5 is considered risky as the entity has twice as much short-term debt compared to cash.

Nigeria Breweries recorded cash ratio of 0.27; Guinness, 0.53, and International Breweries, 0.136.

The largest brewers posted huge losses after tax on the back of foreign exchange revaluation losses in the face of a weak Naira, and that resulted in negative operating cash flows.

It is important to note that the inability of these firms to maintain enough cash to carry and grow their operations on a sustainable basis combined with a negative shareholders’ fund means they cannot survive without additional capital from debt or equity.

Analysts are of the view that beer makers burned their cash on importation of raw materials and expansion plans with a view to increasing their market share. They, however, added that rising input costs due to imported inflation and exceptional losses disrupted strategic plans.

Nigeria Breweries has completed the Ama brewery expansion, boosting production capacity from3.00mn hectoliters to 4.80mn hectoliters.

Shareholders of International Breweries have approved the company’s quest to raise additional equity capital through a rights issue to existing shareholders.

Nigeria’s annual inflation rate rose to 29.90 per cent in January from 28.92 per cent in December 2023, according to the National Bureau of Statistics (NBS).

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