Soap maker PZ Cussons has said that its 2024 financial performance could be at the mercy of the Nigerian economy this year as it warned that profit will likely drop.
The business said on Tuesday that a recent devaluation of the Nigerian naira is expected to have a “material adverse impact” on its financial performance in the near term.
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The hit from the movement in the currency would have wiped more than £100 million from the Imperial Leather company’s revenue for the last financial year, had it happened a year earlier.
“In light of the recent devaluation of the Naira, which is expected to adversely affect the Group’s financial results in FY24, the Board is recommending a final dividend of 3.73 pence which is unchanged on the previous year,” the company said.
“We have operational and corporate plans in place to mitigate these challenges and are already executing a number of these to improve the performance of the business and to optimize the Group’s cash position,” it added.
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In the course of around a week in June, £1 went from being able to buy around 580 naira to being able to buy around N1,040. It came after the government abandoned a policy that propped up the currency’s value, a move that many market watchers praised.
The business said that if the naira to sterling exchange rate had been as bad in the year to the end of May as it was between July and August this year, adjusted operating profit would have been £58.6 million rather than the £73.3 million that the company made.
The company said that revenue from Africa would have been around £103 million lower.
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Unsurprisingly, therefore, this year’s profits are expected to be hit by the devaluation as well. Adjusted operating profit is expected to be within the range that the markets expect of between £61.5 and £68.2 million, a drop of up to 16 percent.
Revenue rose 10.7 percent in the year to the end of May, the business said, with pre-tax profit falling 4.2 percent to £61.8 million.
“We have delivered a third consecutive year of like-for-like revenue growth and increased operating profit by over 10% since launching our strategy nearly three years ago,” Jonathan Myers, the company’s chief executive said.
Read also: PZ Cussons: Driving profit despite inflationary pressures
“We have achieved these improvements by investing in our brands and capabilities, serving cost-conscious consumers better with targeted innovation and productivity initiatives helping us to reduce complexity across the group,” he said.
PZ’s statement noted that unremitted built-up cash trapped in its Nigeria entity amounts to £200 million of which it is finding it difficult to repatriate.
“Cash flow remained strong, with free cash flow of £69.9 million (FY22: £58.0 million) primarily driven by improved working capital,” it said.
PZ Cussons said in the statement that the unchanged dividend for the year 2023 was a result of the naira devaluation and projects the policy to impact its performance in the near term.
