The restructuring plans and policies currently put in place by PZ Cussons Plc are starting to positively affect its results. CHRIS UGWU writes
The increased exchange rate forced manufacturers to borrow at a higher rate, thus increasing production costs. This is compounded by the lack of infrastructure, which inevitably passed on high production costs to consumers, as it made manufacturers less competitive, reducing their profit margins, as the devaluation of the naira takes a toll on imported raw materials. . Besides the rising cost of raw materials, some manufacturers, especially multinational consumer goods companies, which have made commitments in foreign currencies, are also groaning under the pressure of the rising cost of the dollar. In addition, the challenges of erratic public electricity supply, weak logistics, insecurity and other high operating costs attributable to poor infrastructure continued to make the operating environment difficult for business, in particular the real sector of the economy. However, despite the challenges, PZ Cussons Nigeria Plc, which for a considerable period experienced loss of income, is quickly returning to profitability. Much of this progress, according to market analysts, is linked to PZ Global’s announcement in late 2019 that it would restructure the Nigerian business by streamlining its operations and abandoning non-core businesses and brands to improve overall profitability. The company returned to profitability, however, during the half-yearly unaudited financial statements for the period ended November 2020/2021 and also ended November 2021/2022 in the green. When the closing bell rang on Friday, the company’s stock price was 6.10 N. Financial Data For the first quarter ended August 2019, the cosmetics and soap manufacturing company recorded a Turnover of 15.80 billion naira compared to 15.89 billion naira recorded in the quarter of 2018. This represents a reduction of 0.55% in revenue. Likewise, the company recorded an after-tax loss of 1.1 billion naira in the quarter of 2019, compared to an after-tax loss of 204 million naira recorded during the same period in 2018. This represents a decrease by 435.49%. Earnings per share (EPS) was a loss of 28 kobo in 2019 compared to another loss of 5 kobo in 2018. In the company’s half-year results ended November 30, 2019, manufacturers of several household products in the country said its revenue fell 3.2 percent to 33.95 billion naira from 35.05 billion naira in the first half of last year. The cost of sales increased to 7.46%, from 26.224 billion naira in 2018 to 28.153 billion naira in 2019. However, the selling and distribution costs were reduced to 4.63 billion naira from 5. 12 billion naira, while administrative expenses rose to 2.67 naira. billion of N1.99 billion, with an after-tax loss of N1.580 billion against a profit of N1.221 billion in the same period last year. The group recorded an after-tax loss of 7239 billion naira for the fiscal year ended May 31, 2020 against an after-tax profit of 1.155 billion naira in 2019. Turnover was 66.992 billion naira in 2020 against 74.336 billion naira in 2019, a decrease of 9.88 percent. Cost of sales amounted to 58.370 billion naira in 2020 compared to 57.235 billion naira in 2019. PZ Cussons Nigeria reported an after-tax loss of 212.358 million naira for the first quarter ended August 31, 2020 against a loss of N1.095 billion reported in 2019. While the group’s revenue increased 18.3 percent to N18.700 billion from N15.808 billion in 2019, cost of sales amounted to N13.808 billion N7.620 billion in 2019. PZ Cussons Nigeria, however, returned to profitability as the semi-annual unaudited financial statements for the period ended November 2020/2021 amounted to a profit of N820.9 million against a loss of 1.58 billion naira reported in the second quarter ended November 30, 2019/2020. The housewares company in its results at Nigerian Exchange Limited (NGX) also fell from a loss of 1.58 billion naira in the second quarter of 19/2020 to 1.03 billion naira in the second quarter of 2020 / 2021. With earnings growth, PZ Cussons Nigeria’s basic earnings per share fell from a loss of 40kobo to 21kobo in Q2’20 / 2021. The main factors that contributed to profit included a 10.1 percent increase in income and an 80.1 percent decrease in interest expense during the period under review. The group reported revenue of 37.38 billion naira in the second quarter of 20/2021, compared to 33.95 billion naira reported in the second quarter of 19/2020, while interest expense fell to 58, 58 million naira in the second quarter of 20/2021, compared to 293.7 million nair reported in Q2 ’19 / 2020. In addition, according to the group’s profit and loss figures, cost of sales fell 3.3% to 27.22 billion naira in the second quarter of 20/2021 from the reported 28.15 billion naira. in the second quarter of 19/2020, while gross profit increased 75.3% to 10 dwarfs. 2 million out of 5.79 billion naira reported in Q2’19 / 2020. PZ Cussons Nigeria ended the 12 months ended May 31, 2021 with a revenue increase of 23.0% to N82.384 billion from N66.993 billion in 2020. Revenue for the fourth quarter increased to N22.403 billion. N12.250 billion in the fourth quarter of ’20. The company increased profit for the full year by 125.3% to 1.831 billion naira from a loss of 7.240 billion naira in 2020. Profit for the fourth quarter was 814.719 million naira vs. 3.722 million naira loss in the fourth quarter of 20. PZ Cussons Nigeria reported an after-tax profit of 2.573 billion naira for the six-month period ended 2021/2022, compared to an after-tax profit of 820 million naira in 2020, i.e. an increase of 213%. Profit before tax was 2.999 billion naira, a growth of 192 percent from pre-tax profit of 1.028 billion naira in 2020. Revenue increased 26 percent to 47.087 billion naira from 37.379 billion naira. naira during the comparable period. Cost of sales was 35.696 billion naira in 2021 compared to 27.221 billion naira in 2020. Analyst view / way forward According to analysts at FBNQuest Research, “We believe that PZ is strongly on the road to recovery, after maintaining positive profits in both Q4’21 (end of May) and Q1’22. “In our view, this progress is largely linked to PZ Global’s announcement in late 2019 that it will restructure the Nigerian business by streamlining its operations and abandoning non-core businesses and brands to improve overall profitability. “Subsequently, PZ changed the management of the company in Nigeria replacing the CEO and CFO; reduced company SKUs (product packages); sold Nutricima to FrieslandWamco; and introduced a more stringent working capital structure. The results of these initiatives have led to a return to profitability for PZ since Q2’21. Analysts noted that during their FY’21 and Q1’21 presentation, management noted that in Nigeria they will continue to simplify operations and improve the composition of their product portfolio. “He also mentioned that PZ had increased the prices of all of its major brands, which explains the 84.5% yoy and 18.7% yoy increase in sales in Q4’21 and Q1 ‘ 22 respectively. “Going forward, we expect a more resilient business focused on increased efficiency and margin protection. In terms of estimates for FY22, we have raised our sales forecast by 18.3% to 93.2 billion naira, based on continued growth in demand and favorable prices. “While we understand that the competitive environment remains difficult, especially given the low switching costs for consumers, we believe management is able to navigate headwinds. “We have a new gross margin forecast of 26.5% (+450 basis points over previous guidance) for fiscal year 22. We have also increased our estimate of operating expenses for fiscal year 22. by 9.9% to NGN 18.2 billion. At the bottom of the income statement, we have a PAT estimate of NGN 2.8 billion (compared to a previous estimate of NGN 2.1 billion). “During FY’22 and FY’23, we increased our EPS forecast by 20.7 percent. The new changes involve a new price target of 7.1 NGN (up from 6.0 NGN previously) and a potential rise of + 17.5% from current levels. We keep our neutral rating on the title. Year-to-date shares of PZ have gained 13.2 percent versus 8.5 percent for NGX ASI, ”they said. The company had, at its 70th Annual General Meeting (AGM) in Abuja, informed shareholders that the cost of borrowing (around 20%) was affecting the performance of the company, adding to this the largely affected cost of its goods. and also, made worse by the low volume of sales. PZ Cussons Nigeria said its shareholders and other stakeholders should expect better value in the years to come, although it reaffirmed its confidence in the Nigerian economy. PZ Cussons Nigeria CEO Mr. Christos Giannopoulos said that having operated in Nigeria for 120 years and listed on the Nigeria Stock Exchange for 48 years, the company is well positioned to deliver better value in the years to come. Giannopoulos, speaking at the closing gong ceremony at NGX to mark the company’s 120th anniversary, said: “We are very proud to be here today. Contrary to rumors from a few months ago, I would like to reiterate that PZ Cussons is here to stay. We’re not going anywhere. “We are confident in our actions; we have confidence in our company. We have approximately 76,000 shareholders; they expect returns and they earn returns through the continuous payment of dividends during the years that they are a listed company. The future is bright. “He said the outlook is bright as Nigeria has a population of around 190 million and is Africa’s largest economy. He said the company will continue to invest in order to expand its capabilities. and modernize to ensure that it has the latest and greatest equipment and that it manufactures quality products. “We are currently going through what I will call tough times, but the fundamentals of the business are extremely good. Our market share is very good. We compete in the market and our market share is positive and not negative, “added the CEO. Alan Bergin, Interim CFO of PZ Cussons, said: “The strong performance in UK partially mitigates losses in Nigeria, decline in Australia and the impact of COVID-19 on beauty, mixed result between major brands. Important steps in second half to strengthen organization and reduce complexity. Bottom Line It is important for the business to focus on developing in-house solutions that will meet the business needs of individuals and organizations.