PZ Cussons shareholders fate hangs in the balance

… company posts growing losses

Mr. Alex Goma, MD, PZ Cussons Nigeria

By OKEY ONYENWEAKU
PZ Cussons, one of Nigeria’s most enduring consumer brand names, had a terrible time at the beginning of the year as the company’s operations ended in a major loss. Not many investors can easily cut emotional attachment to PZ but the company’s recent earnings performance seems to be changing all that.
Stakeholders in the company are already wearing long faces as their shares in the company buckle under the weight of falling market yields. PZ’s performance in the first quarter of the year has been starkly disappointing.
This weakness is reflected in the company’s losses in the first quarter of the 2018/19 financial year. With a loss before tax of 13 percent from a huge loss of N181.005 million in 2017/18 into a deeper loss of N204.6 million, shareholders may remain in the woods for some time to come. PZ posted declining revenues as inventories went up steadily. At the close of business in the first quarter August 2018/19, revenues plunged 14.3 per cent from N18.542billion in 2017/18 to N15.895billion in 2018/19.
Receivables rose 4 per cent, indicating that the company’s products are struggling to find buyers as fewer goods get sold. PZ’s forex losses, though lower than that 2018/19, was high at N666.3 million as operating profit equally plunged 79.2 per cent from the giddy N1.793billion in the corresponding period of last year to N385.4 million in 2018/19.
These events have culminated in the weak stock market placing of the company which analysts at Cordos Capital predict will be even weaker in the forthcoming second quarter.
‘’ Compared to 2018, we now expect the group’s earnings in Q2, and indeed the rest of 2019E, to be weaker, with the trading update also released last week by the parent company suggesting still challenged conditions in Nigeria ahead of the general elections. We recently spoke to some of PZ’s distributors in Lagos and they confirmed that “the market has been subdued since June across all segments”, with new HPC launches gaining only little traction’’, said analysts at Cordros.

‘’While the focus for PZ must be on maintaining cost control, we are afraid that increasing competition will force the group to retain opex around current levels (NGN4 billion average quarterly spend since Q1-18) to maintain market share across product segments. On our forecast 2% decline in revenue, we reduce our 2019E EBIT margin estimate to 3.5% (previously 4.1%)’’, the analyst added
Over the years, PZ Cussons Nigeria Plc had competed favourably with the likes of UAC Nigeria Plc, Unilever Nigeria Plc and Cadbury Nigeria Plc and even dominated the market at some point in the 70’s and 80’s.
Older citizens remember with nostalgia, the escapades of PZ Cussons and how it dominated toiletries in their homes.
The company manufactures and distributes some of the best loved brands in Nigeria, from Imperial Leather to Cussons Baby soaps, Morning Fresh liquid cleaning detergent to Thermocool cooling appliances and Robb therapeutic balm. The firm operates in five core categories – personal care, beauty, home care, food and nutrition and electricals. Its Worldwide Group employs over 5000 people across Africa, Europe, Asia, and North America. But its fortunes particularly in Nigeria appear to be waning.
The company paid lower dividend than shareholders expected in the year ended May 30, 2018. Its annual results for 2017/18 reveal a decline of 44 per cent in its profit after tax (PAT).
In 2016, shareholders shared N1.985 billion or 50 kobo per share, but received 15kobo per share totalling N595.572 million in 2017.
Its weak performance had set in 2017, when its audited results revealed that revenue only grew 3.0 per cent to N80.553billion from N78.216 billion recorded in 2017.
Cost of sale also rose from N50.267 billion to N56.097 billion, bringing the gross profit to N24.455 billion compared with N27.947 billion the previous year. PZ Cussons has not been able to cut its cost as sales and distribution costs rose to N9.601 billion from N9.095 billion.
Similarly, administrative expenses jumped to N6.626 billion from N5.637 billion in 2017. Net financing cost took a turn for the worsejumping significantly by 234 per cent to N652 million, from N195 million in 2017.
While the Chairman of PZ, Chief Kola Jamoduhad blamed the weaknesses of the company on inflation, shareholders are evidently worried that the company’s future is troubled.
Analysts have blamed the company’s poor performance on the weak economy and security challenges from the religious sect, Boko haram and the various assaults on farmers by Fulani Herdsmen.
Stakeholders say deep challenges emanating from a tough macro-economic environment in Nigeria have been hard on manufacturers. Analysts believe further problems faced by local manufacturers include, but are not limited to, the volatility of the forex market, and high lending rates which hover between 25 and 30 per cent. Other challenges include shrinking sales income, unemployment, high inflation which has gradually come down to slightly over 11 per cent.
Mr. Boniface Okezie, an activist shareholder told Business Hallmark by way of a telephone interview that the weak economy has not only affected the purchasing power of Nigerians, the company was facing the same challenges of harsh operating environment as other manufacturing firms in the country. Okezie advised the company to watch its source of funds and borrow less.
‘’The economy is bad and the competition is becoming very high for the little money in circulation. Not many organisations can do much in such an environment’’, he added.
Lagos based analyst, Managing Director of High Cap Securities Limited, David Adonri shares Okezie’s views, adding that security challenges especially in the Northern part of Nigeria has posed serious problems for manufacturers to sell their products in the affected areas.
Compared to Unilever Plc , UAC, Nestle Nigeria Plc and Cadbury Nigeria, PZ Cussons appears to be having the most challenges following the huge losses it has posted.
Investors in PZ Cussons have lost 40 percent on its stock as price plunged from N21.15 per share on January 2, 2018 to N12.60 on October 12, 2018.

PZ Cussons Nigeria Plc is a publicly listed Nigerian manufacturer and distributor of consumer products such as detergents, toiletries, soaps and home appliances. It is a subsidiary of Manchester based PZ Cussons Holdings owns controlling shares in the firm.