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PZ Cussons: Driving profit despite inflationary pressures

PZ Cussons: Driving profit despite inflationary pressures

PZ Cussons, a maker of personal healthcare and consumer goods has demonstrated its tenacity in the first quarter (Q1) 2023 results by reporting a 463 percent increase in earnings despite increased input costs that have negatively impacted consumer goods manufacturers’ profitability.

According to the Nigerian Exchange group (NGX), the firm’s profit surged from N231 million in the first quarter of 2022 to N1.3 billion in the first quarter of 2023, representing the highest profit reported in nine (9) years.

The consumer goods firm grew its revenue by 23.38 percent in the first quarter of 2022 to N27.39 billion from N22.2 billion in the first quarter of 2022.

The cost of sales grew by 29.6 percent to N21.41 billion in the first quarter of 2023 as against N16.52 billion reported in the first quarter of 2022.

Analysts at CSL Stockbrokers Limited said: “The faster growth in Q1 2023 could be attributed to the prevailing impact of the naira devaluation amid global inflationary pressures as the company imports all the electrical appliances sold by the durable electrical appliances segment while also relying on imported raw materials for the home and personal care segment.”

The higher growth in the cost of Sales weighed on EBITDA as it grew slightly by 4.9 percent to N2.27 billion in the first quarter of 2023 from N2.17 billion in the first quarter of 2022. Hence, EBITDA Margin contracted by 1.5ppts to 8.3 percent in Q1 2023 from 9.8 percent in Q1 2022.

Selling and distribution expenses grew by 5.51 percent in the first quarter of 2023 to N2.49 billion from N2.36 billion in the first quarter of 2022, vehicle administrative expenses were down 4.97 percent to N1.72 billion in the first quarter of 2023 from N1.81 billion in the first quarter of 2022.

Read also: How PZ Cussons’ Baby Moments Initiative sustains consumer engagements

The consumer goods company reported a 420 percent surge in impairment of trade receivables amounting to N51.6 million in the first quarter of 2023 from N10 million reported in the first quarter of 2022.

Trade receivables impairment results from the loss of value of the amounts an entity has pending claims from its customers for the delivered goods or services. The allowance for impairment of trade receivables estimates the percentage of accounts receivable that are expected to be uncollectible.

PZ Cussons’ total assets appreciated by 42 percent to N126 billion in the first quarter of 2023 from N88.79 billion in the first quarter of 2022.

Its shareholders’ equity saw a 12 percent boost to N39.04 billion in the first quarter of 2023 compared to N34.79 billion in the first quarter of 2022.

The cash position of the firm grew immensely as total cash and cash equivalent reported by the firm grew by 185 percent to N53.43 billion in the first quarter of 2023 from N18.74 billion in the first quarter of 2022.

Net cash flow generated from operations after working capital changes amounted to N-17.04 billion, suggesting that the company is not generating enough cash from its operations.

Working capital is used to fund operations and meet short-term obligations. If a company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments and taxes, even if it runs into cash flow challenges.

Further analysis by BusinessDay on the changes in working capital during the period shows that the firm reported a decrease in trade receivables totaling N7.64 billion.

Net cash flow from investing activities grew by 804 percent to N562 billion in the first quarter of 2023 from N62 billion in the first quarter of 2022.

The increase is largely due to the cash inflow of N651 million from interest received during the period. The company also invested in property, plant, and equipment (PPE) during the period. It purchased PPE amounting to N88.6 million in the first quarter of 2023.

Net cash from financing activities amounted to N17.03 billion in the first quarter of 2023, up from N14 thousand reported in the first quarter of 2022.

Further analysis shows that the company received a loan during the period which amounted to N17.03 billion, forming a huge cash inflow from financing activities. The cash outflow used in financing activities reported by the firm includes an interest expense of N1.4 million in the first quarter of 2022.

The consumer goods firm reported earnings per share of N33 per share in the first quarter of 2023, up from N6 per share reported in the first quarter of 2022.