Consumer goods firms settle for “half-loaves” as cash margin shrinks

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Players in the consumer goods space opted to trade more cash for credit in the first three months of 2019 in a bid to enjoy better customer patronage and bolster their shrinking revenue base.

In the first quarter of 2019, efficiency of consumer gods firms in generating cash from sales dipped, according to data compiled from company financials, as the manufacturers settled for ‘half a loaf’ in getting their products off the shelves into households.

Analysis of the operating cash of ten (10) players including Cadbury, Nestle, Vitafoam, Nascon, Dangote Sugar, Dangote Flour and Champion Brewery among others, revealed that cash flow to revenue turned negative to -37.54 percent in the first quarter of 2019 compared with 21.40 percent a year before, signalling worsened cash efficiency.

According to Yinka Ademuwagun, research analyst at Lagos-based United Capital Plc, consumer goods firms are embarking on aggressive credit strategy to retain their customers and boost top-line growth knowing fully well that customers’ wallets are stifled.

“Consumer goods are facing a hard time. Any firm that can’t sell cheap or on credit in this current weak consumer wallet will suffer. That is why most of them are extending credit.”

Of the ten players covered in the analysis, only Nigerian Breweries recorded better cash margin of 8 percent in the review quarter as cash flows from operating activities of the beer maker outpaced top-line growth.

The operating cash margin measures how firms are able to generate cash from every naira sales they make. It is obtained by dividing a company’s revenue or sales over a period by how much operating cash the said firm was able to make in the same period.

A higher figure shows that a company was able to convert a higher proportion of its sales to … Read More...