PZ: Nigeria’s Economic Woes Depleting Earnings | Independent Newspapers Limited
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PZ: Nigeria’s Economic Woes Depleting Earnings

Kola Jamodu
Posted: Mar 5, 2016 at 5:27 am   /   by   /   comments (0)

Just as other quoted firms in Nigeria are facing depression in share prices, market sentiments for the shares of PZ Cussons, one of Nigeria’s leading personal and household companies listed on the floor of the Nigeria Stock Exchange, have dwindled relatively due to the challenging environment faced by the real sector of the economy, Bamidele Ogunwusi, writes;

The nation’s economic woes are having their toll on businesses across the country. It is, however, on record that the year 2015 is one of the worst years for all the sectors in the country, including manufacturing as the value of their stock prices and earnings have been falling massively.

Most of the problems that faced the sector in the past five years still linger in the current year. Since the current administration came into power, the exchange rate volatility and drop in oil price have negatively affected businesses. The increase in exchange rate has forced manufacturers to borrow at a high rate, thereby increasing cost of productions.

The situation has been made worse by the current infrastructure deficiency, which has inevitably transferred the high production cost to consumers. It has also made manufacturers less competitive, shrinking their profit margins, as naira’s depreciation takes its toll on imported raw materials.

Besides the increased cost of raw materials, which some manufacturers, especially multinational consumer goods companies have faced in the last two months, have heighten their pressure of increased cost of accessing foreign exchange.

Some of these companies, though planned their cash flows in advance can’t easily adjust to the current currency fluctuations. The exchange rate volatility and difficulty in accessing dollars have resulted in companies making less profit while the marginal operators are suffering.

Also, challenges of erratic electricity supply, weak logistics, insecurity and other high costs of operations attributable to poor infrastructure have continued to make the business operating environment difficult especially for the real sector.

Given headwinds such as weak demand on the back of squeeze on household wallets, most consumer goods companies in Nigerian have continued to find it difficult to weather the storm. One of the companies adversely affected is PZ Cussons, which has seen continuous decline in oil price at the international market, and insecurity in some parts of the country adversely affecting its sales in the affected region.

Market watchers, who that predicted the company was likely to further record downswing in profits, came near to expectation as the financial report for the second quarter ended November 2015 showed a drop of 46 per cent.

The share price, which closed at N27.80 per share in March 31, 2015, has recorded a dip in growth that when the closing bell rang on Friday; the share price stood at N21.90, representing a decline of N5.9 or 21.22 per cent year to date.

PZ Cussons ended the full year ended May 2015 with a 10.07 per cent decline in net earnings. The soap maker’s profit after tax fell to N4.570 billion during the period under review against the N5.082 billion recorded the previous year, representing a decline of 10.07 per cent.

Profit before tax stood at N6.556 billion as against N6.949 billion posted the previous year, accounting for a drop of 5.66 per cent. Turnover increased marginally by 0.30 per cent to N73.126 billion during the period, compared with N72.905 billion in the same period of last year.

The company began the new financial year in the red as the Q1 2016 (ended August 2015) figures recently released showed a 37.32 per cent decline in profit before tax, from N872.291 million the previous year to N546.792 million during the period under review.

Profit after tax stood at N427.851 million during the first quarter as against N641.698 million posted a year earlier, representing a drop of 33.33 per cent. The company’s revenue also dropped by 0.44 per cent to N14.953 billion as against N15.049 billion reported the previous year.

The trend of decline in profit continued during the second quarter as PZ Cussons posted a 46 per cent decline in profit after tax for the second quarter 2016 ended November 2015.

In a filing from the NSE, the unaudited consolidated statement of profit or loss and other comprehensive income for the period ended showed profit after tax of N779.452 million as against N1.441 billion recorded in 2014, accounting for a drop of 45.92 per cent.

Profit before tax was equally down by 40.64 per cent from N1.941 billion posted the previous year in contrast to N1.152 billion recorded during the period under review. The company’s  revenue declined by 3.29 per cent to N30.619 billion as against N31.659 billion in 2015.



Giving reasons for the declines, the company said the violence affecting parts of the country was causing only limited disruption to business. Most of PZ’s Nigerian factories are located in the south, while the conflict that has left thousands dead is mostly confined to the north east of the African nation, according to Chief Financial Officer, Brandon Leigh.

“It does impact business, but it doesn’t impact all of the business,” Leigh said recently after the company reported a drop in first half sales and profit.

Analysts at FBN Capital believe naira’s devaluation during the quarter more than offset any benefits accruing from subdued crude palm oil prices (CPO), a key raw material.

They noted that the decline in year on year sales and profits in Nigeria were mainly due to difficult trading conditions, insecurity in the North and naira devaluation.

According to the analysts, these factors continue to offset meaningful growth in the south of the country, especially in the electrical goods business and food segment joint ventures.


Speaking at the 2015 Annual General Meeting (AGM), the Chairman of the company, Chief Kola Jamodu, said events and developments post-election period had strengthened the company’s confidence and increased its level of optimism.

He said: “We are geared towards meeting our stakeholders’ expectations by deploying the right strategic and tactical plans to deliver a strong performance in the coming years.

“The optimisation of our supply chain processes will continue leading to improvement in operational efficiencies.

“We will also continue to invest in core brands and growth categories through our planned extension into new routes to market, ensuring a minimisation of our cost base”

“Additionally, as we are part of a global business, we are adapting our management structure to reflect a consumer led organisation”.

He specifically said: “The impact of this is that brands which have a global presence will be managed centrally, thus reducing the cost of implementing consumer relevant product innovations and offerings, and a similar approach will be adopted for regional brands.

“The supply chain is being integrated into a single structure across the globe and the sales function will align across defined route to market strategies with consistent ways of working. Although we are ‘centralising’, local insights will have a significant bearing on the New Product Developments (NPDs) to ensure that our consumer needs in local markets are the driving force of our investments”.

Moving Forward

To remain in business, there is no doubt that the company needs to take some proactive steps. Though high cost of operations has remarkably weighed down on the manufacturing sector, it is important for the company to continue to manage its cost base tightly to deliver moderate operating margins improvement for growth and profitability.