PZ, NB, Guinness trade cash for credit amid weak consumer spending

Nigeria’s rough economic terrain characterized by a sluggish growth, weak purchasing power and squeezed disposable income, has prompted most consumer goods companies to start trading cash for credit in a bid to stimulate sales.

This practice is now the trend in the industry, underscoring players’ efforts to drive sales by extending friendly credit conditions to distributors given their weaker sales and lower margins.
Figures from the financial report of PZ Cussons for June 2018 to May 2019 show that trade receivables increased by 16 percent to N15.2 billion in 2019 from N13.1 billion in 2018, while revenue declined by 7.8 percent. Unilever also saw receivables jump 67.2 percent while revenue slowed by 11.6 percent.

“They are doing this to make distributors take enough goods from them,” said Abiola Gbemisola, a research analyst at Lagos-based Chapel Hill Denham.

“People don’t have money to spend and the companies are producing, so they have high inventory and a way of reducing their inventory is to give their goods on credit,” Gbemisola said.
Trade receivables arise when a business makes sales or provides a service on credit. It represents the amount of sales, which have not yet been paid for by customers.

Analysts say the trend is more prominent in the beer industry because a sizeable number of their distributors are finding it difficult to access loans from banks.

“Banks are reluctant to provide credit to them which is preventing them from buying more products, so the beer makers have no choice than to sell on credit,” Ayorinde Akinloye, analyst at CSL Stockbrokers, said.

The financial report of Guinness Nigeria plc for the period July 2018 – June 2019, shows that revenue declined by 7.9 percent to N131.5 billion in 2019 from N142.9 billion in 2018 while receivables increased by 9.7 percent.

For Nigerian Breweries (NB) plc revenue reduced by 1.4 percent to N170.2 billion in the first six months of 2019 from N172.6 billion in the same period of last year while receivables rose by 4.8 percent.

Akinloye said players in the industry were accumulating more receivables despite lower revenues, noting that their sales would have shrunk if they did not extend such credit facilities to their distributors.

Data from the National Bureau of Statistics on Gross Domestic Product (GDP) by Income and Expenditure approach at 2010 purchaser’s values show that consumption expenditure of households has been declining at varying pace since it rose by 1.5 percent in 2015.
Also, Nigeria’s per capita income declined to $2,049 in 2018 from $3,268 in 2014, according to the International Monetary Fund (IMF).

Eronmosele Aziba, consumer analyst at Tellimer Group, a financial services provider, said that the trend was being noticed across the industry, adding that it was just an indication of the state of the economy.