PZ Cussons Raises Shareholders’ Hopes

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With a profit of N589m for the half year ended Nov 30, PZ Cussons Nigeria Plc has raised the hopes of its shareholders for improved returns, writes Goddy Egene

By this time last year, PZ Cussons Nigeria Plc was in a bad shape having recorded a loss of N228.950 million for the half year ended November 30, 2016. But this year, the company has bounced back with positive performance for the H1 ended November 30, 2017. According to the results released last week, PZ Cussons, has reported a profit after tax (PAT) of N589 million for the H1 ended November 30, 2017.

Financial performance
The company, which is into the manufacture, distribution and sale of wide range of consumer products under various brand names, such as detergent, soap, cosmetics, medicaments, confectionery, refrigerators, freezers, air conditioners and home appliances, recorded a turnover of N41.123 billion, up by 23 per cent compared with N33.302 billion in the corresponding period ended November 30, 2016. Cost of sale went up by 31.9 per cent from N21.834 million to N28.796 million, leading to a gross profit of N12.326 billion as against N11.468 billion in 2016.
Sale and distribution expenses similarly went up by 5.0 per cent to N4.632 billion from N4.412 billion, while administrative expenses increased from N2.708 billion to N3.813 billion.

The company reaped the benefits of the stable foreign exchange as its forex loss declined by 47.9 per cent to N2.572 billion from N4.938 billion in 2016. However, interest paid on borrowings remain high with net cost of finance jumping by 957 per cent to N58.458 million to N501.183 million in 2016.
Consequently, profit before tax stood at N868.683 million compared with a loss of N425.177 million, while PAT improved to N589 million as against a loss of N288.9 million in 2016.

Positive Signals
Some market operators said the improved H1 performance was expected given the company’s results for the full year ended May 30, 2017 and the strategy. PZ Cussons had posted a revenue of N79.65 billion, up by 14.5 per cent from N69.52 billion posted in 2016.
In line with the high inflationary trend during the review period, cost of sales went up from N49 billion to N51 billion, while sales and distribution expenses rose from N8.825 billion to N9.09 billion.

However, net finance cost fell from N387 million to N195 million. Consequently, profit before tax stood at N4.811 billion in 2017, up from N3.148 billion, while profit after tax grew to N3.886 billion, from N2.129 billion in 2016.
The directors recommended a dividend of N1.98 billion, which is 50 kobo per share for the shareholders.

According to the company, it has adapted its management structures to create a truly customer care organisation, saying as part of a global organisation, it has benefitted from global innovations and initiatives of the group.
“In this breadth, our supply chain processes and sales functions have been integrated as a single structure across the globe and across the region,” it said.

PZ Cussons Nigeria noted that it is confident of its brands which are leading in the market segments they participate.
“We are going to sustain the current initiatives that have proved to be positive and effective. We will also keep the focus on key brands,” it said.

Speaking at the company’s annual general meeting in Abuja last October, the Chairman of the company, Chief Kolawole Jamodu said despite the challenging economic conditions, the company was able to grow both top line and bottom line.
He said: “The result reflects that the underlying business is solid and reflects the strength of our operations…Your board and management will continue to monitor the business environment and will make necessary adjust to sustain the positive growth momentum into the future.”
According to him, they remain excited and confident about the future of the company.

“This confidence is emboldened by the recent positive turn in the economic situation in the country which has witnessed the starting of a turnaround during the second quarter of the fiscal year.
“We are confident of our brands which are leading in the markets segment in which we participate. We are going to sustain the current initiatives that have proved to be supportive and effective. We sustained our strong cash position which makes us flexible and agile to fund operations and pursue any business opportunities that may arise.”

Jamodu said the company adapted its management structures to create a truly customer care organisation, saying that as part of a global organisation, it has benefitted from global innovations and initiatives of the group.
“In this breadth, our supply chain processes and sales functions have been integrated as a single structure across the globe and across the region,” he said.

Analysts’ Assessment
Looking at the second quarter (Q2) results, analysts at FBN Quest said given the performance, it has confirmed their view that management may have found a winning formula for its product price-volume mix.
According to the analysts, while sales of N22.2 billion grew 42 per cent, PBT and PAT were up 73 per cent and 110 per cent to N1.1 billion and N628 million respectively.

“Gross margin expansion of +172 basis points (bps) to 28.5 per cent and the top-line growth delivered during the period more than offset negatives coming through from a double-digit rise in operating expenses and an FX-related loss of N779 million, leading to the PBT growth. FX loss compares to a loss of N1.8 billion in Q1 2017 (end-Aug). Following the Q1 results, management had guided to more FX-related losses during this financial year on account of FX-denominated account payables. PZ Cussons has now delivered top-line growth for five consecutive quarters since Q1 2017. This confirms our view that management may have found a winning formula for its product price-volume mix,” they said.

FBN Quest explained that sequentially, PBT of N1.1 billion compares with a loss before tax of –N181 million. Sales growth of 18 per cent q/q and a relatively smaller FX loss in Q2, more than offset negatives from a gross margin contraction of -321bps q/q.

“Additionally, operating expenses grew by low single digits q/q. Compared with our estimates, sales beat by 19 per cent, while PBT came in ahead by 28 per cent. The major drivers of the variance were a stronger-than-expected top-line growth and a positive surprise on the FX-related loss line. On an annualised basis, H1 2018 sales and PBT are tracking well behind consensus FY 2018 estimates of N85.6 billion and N9.7 billion respectively,” they said.

Looking ahead
Looking to the future, the company said it will continue to develop innovative leading brands in markets and geographies selected for their growth potential.
“We operate in specific geographies through our own infrastructure or in partnership, tailoring our channel approach for each category. We operate where our brands have a strategic advantage, in categories that offer profitable growth opportunities.

We win through understanding local consumer needs, being first to market and being unconstrained by big company bureaucracy. Continuous and faster innovation will ensure our brands occupy leading positions in these categories,” the company said.
PZ Cussons added that it operates an ever-evolving supply chain designed to service its categories.

“We deliver innovative products from various sources to our customers quickly and efficiently. We work with people who share our values. Can do is our unifying strength, the thread that binds our diverse businesses around the world together,” it said.