The total amount of cash hoarded by 10 Nigerian manufacturing companies reached N108.3 billion in 2017 up from N95.39 billion at the end of 2016, representing a growth of 12.73 percent year-on-year Data from the annual reports of the select companies shows their cash mountain represents 2.89 percent of a combined N3.74 trillion asset base.
Specifically, the data showed that six of the 10 companies – Dangote Group, Nigerian Breweries, Guinness Nigeria, Flour Mills, Lafarge, and Cadbury saw their cash holdings grow in the year under review while four – Nestle Nigeria, PZ Cussons, Unilever Nigeria and Du l Prima Foods, had theirs reduced.
Business a.m. investigations revealed that the cash balances may have risen in line with improving margins of the companies following staff cuts and the pervading unemployment which has reduced the wage bargaining power of Nigerian workers.
Companies have also been hoarding cash while fearful of the economic outlook.
Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI) said the increase could be as a result of the uncertainties surrounding the business climate in the country, which has made them cut their investment in expansion, adding that most companies also want to partake in government’s bonds and treasury bills, which became attractive investment options lately due to high yields of up to 18 percent.
Ayeni Adedayo of RenCap, an investment firm in Lagos, Nigeria said most of the companies have seen volume growth being relatively at in the last two years for not justifying the need for capital expenditure as utilization levels at plants and production sites have been low due to dwindling consumer power.
He, however, sees the cash balances declining in the near term because most of the companies will pay dividends in second quarter of 2018.
Some other analysts say the cash holdings by the companies is good as they would put them to work at some point, with dividends, share buybacks, and M&A, all of which is shareholders friendly. But the companies would need greater confidence in the macroeconomic outlook before they release their cash.
“ They had a near-death experience in 2016, and I don’t see them starting to spend it anytime soon,” one said.
Another said that, if the cash mountain rises beyond the current level, hedge funds would be tempted to pressure companies to spend their money on acquisitions or return it to shareholders in the form of dividends.
A look at the financials of the companies from their annual reports for 2016 and 2017 financial year revealed that cash holdings went up by 13 percent. Only Nestle Nigeria and Unilever Nigeria’s financials were unaudited and ended on September 2017.
Nigerian Breweries cash holdings increased by 30.5 percent from N12.16 billion in 2016 to N15.87 billion in 2017 with investment remaining at N150 million for both years, which indicated that the beer giants prefer to maintain its existing breweries and production lines rather than venture into new areas.
Dangote Group also increased theirs by 45 percent from N115.69 billion in 2016 to N168.39 billion in 2017.
In 2015, the company’s cash was merely at N40.79 billion.
The cash holdings for Flour Mills increased by 35 percent from N33.213 billion in 2016 to N45.01 billion in 2017, while Guinness Ni- geria grew its cash by 66.8 percent from N6.59 billion to N10.99 billion
From N19.27 billion in 2016 Lafarge increased its cash holding by 23.6 percent to N23.81 billion in 2017, while Cadbury Nigeria’s unaudited report as at June 2017 showed cash growing by 7.7 percent from N3.01 billion in FY2016 to N3.26 billion.
Nestle Nigeria started 2016 with N51.35 billion in bank accounts as cash and cash equivalents but by end of 2017 financial year, their cash holdings dropped by 45.8 percent to N32.21 billion which may be due to investments in their machinery and other business concerns.