PZ Cussons Nigeria receives more money from operation to support business

PZ Cussons Nigeria Plc is efficient in turning raw materials and labour into income as the company receives more money from operations to support its business, thanks to the gradual reopening of the economy. In the last six years, the consumer goods giant has been making money on a Naira of sales after deducting variable costs and operating expenses.

For the first quarter ended August 2020, the company posted an operating profit of N755.12 million from a loss position of N1.02 billion as at quarter ended August 2019. Analysts prefer the operating profit as a measure of profitability and efficiency to net income because the former does not include exceptional items that are one-off events.

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Improvement in margins is largely attributable to strong growth at the top line (revenue) and cost controls, as the company’s innovative products continue to make an inroad into the Nigerian market. Revenue spiked by 18.30 per cent to N18.70 billion in the first quarter ended August 2020, like the Home and Care Personal/ Durable Electrical Appliances continues to add impetus to earnings.

The chart below shows the current sales figure is the highest in six years. The strong sales helped buoy gross margin that expanded by 900 per cent basis point to 26.16 per cent in the period under review as against 17.16 per cent the previous year. Also, gross profit spiked by 80.80 per cent to N4.89 billion as at quarter ended August 2020.

PZ Cussons Holdings, the parent company of PZ Cussons Nigeria, has initiated several restructuring initiatives and strategies aimed at refocusing investment, simplifying its operations in Nigeria and disposing of non-core brands and activities to improve overall profitability. The parent has introduced a tighter working capital programme, which has seen a strong improvement in trade receivables and a reduction in stock. It also announced the disposal of Nutricima Limited (a dairy business) for Us$20.30mn (£15.60 million)

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PZ Cussons Nigeria has zero long term debt in its balance sheet, which gives it the leeway to tap the debt market to raise funds to finance future expansion plans. The gradual reopening of the economy after several months of lockdown that disrupted the demand and supply chain helped the Nigerian consumer goods giant pared its losses. Losses fell to N212.35 million as at quarter ended August 2020 as against N1.09 billion the losses the previous year.

The abrupt devaluation of the currency by the central bank in October 2019 led to a foreign exchange loss of N1.052 billion, which erased the windfall from the top line (sales). Since foreign exchange loss is an exceptional item that does not occur at all times, it is expected that PZ Cussons Nigeria will soon post a net profit after tax. The coronavirus pandemic has dealt a devastating blow to business activities, but analysts are optimistic of a gradual recovery as the government has eased the lockdown.

Real GDP contracted by 6.10 per cent year on year (YoY) in the second quarter (Q2) 2020, according to recent data by the National Bureau of Statistics (NBS). Analysts at Chapel Hill Denham Limited in a recent to client said GDP will contract by 3.0 per cent in the fourth quarter.