…at N23.60 per share
PZ Cussons Nigeria Plc (PZCN) said its board of directors held a meeting on Thursday February 13 and approved amongst other things that $34.264million equivalent to N51.795billion out of the outstanding intercompany loan amount owed by the Company to PZ Cussons (Holdings) Limited (PZCH) be converted into equity. PZCH holds a 73.27 percent stake in PZCN.
In June 2022, PZCH advanced an intercompany loan of $40.26 million to PZCN to help settle outstanding foreign currency payables related to raw material imports, operational and other input related costs that had not been possible to settle due to challenges with foreign currency availability.
The liberalisation of the foreign exchange market in June 2023 and attendant devaluation of the currency throughout 2023 and 2024 has had a material adverse impact on the financial results of the Company as the Naira value of its foreign currency denominated loans has increased significantly.
This resulted in an unrealised exchange loss of N157.9 billion, a loss after tax of N76 billion and a negative shareholders’ equity position of N27.5 billion for the financial year ended May 31, 2024.
While PZCN has continued to record strong operational growth, reporting 34 percent and 42 percent year-on-year (YoY) revenue growth for the full and half financial year periods ended May 31, 2024 and November 30, 2024 respectively, further depreciation of the value of the Naira and its adverse revaluation impact on the foreign currency loans of the Company has continued to erode PZCN’s operational profit resulting in losses after tax and a worsened negative net equity position of N34.5 billion as of the Company’s latest financial results dated November 30, 2024.
Read also: PZ Cussons plans $34.3m debt-to-equity swap
Rationale for the conversion and expected benefits
The Board is of the opinion that the loan-to-equity conversion would create value for the shareholders and other stakeholders of the company for the following reasons:
Strengthening the balance sheet allows future operating cash flows to be allocated more strategically towards value-creating opportunities that align with the Company’s growth objectives.
It will materially reduce the Company’s exposure to foreign exchange risk and its potential impact on Company earnings, thus reducing future foreign exchange losses and further deterioration of the Company’s net asset position.
It will improve the Company’s financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the Company’s financial standing and creditworthiness.
The Conversion will restore the Company to a positive net asset position. A stronger balance sheet and improved financial ratios could enhance investor confidence in the Company, potentially leading to a more favourable market valuation in terms of share price and increased liquidity for shareholders.
In an explanatory note to this development, the Board said it has carefully considered various options to address the Company’s negative equity position which is considered essential to reposition the Company to the path of profitable sustainable growth.
“This includes settling the outstanding shareholder loan obligation and reducing the overall Company’s exposure to foreign currency fluctuation risk. The Board and PZCH, after extensive discussions, agree that the conversion of a portion of the outstanding loan amounting to $34.26 million into equity is the most efficient value of debt to be converted into equity and the optimal option for the Company to strengthen its balance sheet and significantly reduce exposure to further foreign exchange losses.
“The Conversion will significantly strengthen PZCN’s balance sheet and support its future growth without excessive dilution to the interests of minority shareholders. Following the Conversion, the remaining shareholder loan balance of $6 million will remain as a loan payable to PZCH. The terms of the balance of the shareholder loan will not be altered as a result of the conversion. This loan is being provided on highly favourable terms, especially when compared with the current lending rates in Nigeria, which allows PZCN to maintain manageable financing costs while supporting its operational cashflow,” the Board said.
The company also notified its shareholders, the investing public and the Nigerian Exchange Limited (NGX) that the Board of Directors of PZ Cussons Nigeria Plc resolved to recommend this decision and others to the shareholders for their consideration and approval at an Extraordinary General Meeting (EGM) to be convened on March 13.
Also at the EGM, the company will also be seeking its shareholders approval for PZ Cussons share capital to be increased from N1.985billion to N3.082billion by the creation of 2,194,716,637 ordinary shares of 50 kobo each, such shares to rank pari passu in all respects with the existing ordinary shares in the capital of the Company.
The Board of Directors will also seek PZ Cussons shareholders approval for the Company to allot 2,194,716,637 ordinary shares of 50 kobo each to PZCH in consideration for the conversion of the intercompany loan at the price of N23.60 per share, being the share price of the Company as at close of trading on February 12, 2025, each share to rank pari passu in all respects with the existing ordinary shares in the capital of the Company and on such other terms and conditions as may be decided by the Board; subject to obtaining relevant regulatory approvals.
PZCN is a leading player in Nigeria’s consumer goods sector operating across the baby, hygiene, beauty and electricals categories. It manufactures and distributes leading brands including Morning Fresh, Canoe, Premier, Joy, Stella, Venus, Imperial Leather, Cussons Baby, Carex, and Robb. In the electricals segment, PZCN assembles and/or distributes products including refrigerators, freezers, air-conditioners, and washing machines under the Haier Thermocool brand. PZCN is a subsidiary of PZCH.
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