PZ Cussons, the British manfacturers of homecare products and consumer goods, wants to stream line its operations in Nigeria as a weak economy continues to undermine earnings in its African market.
The United Kingdom (UK) based company said the simplification drive in Nigeria will lead to investment in fewer brands and categories over the coming years in order to streamline operations and control cost growth.
But experts are of the view that the parent company decision to reduce its available brand and categories in Nigeria is likely due to increased competition from some fringe players and imported products.
PZ Cussons Nigeria has been floundering since 2016, when a precipitous drop crude oil price stoked a severe dollar scarcity that paralyzed business activities. A lot of companies couldn’t import raw materials and equipment to bolster operation because foreign currency was inaccessible.
The last time PZ Cussons Nigeria made a profit was in 2015 (based on its first quarter August results), and it recorded losses in 2018/19 periods despite the introduction of a foregn exchange regime by the Central Bank of Nigeria (CBN) that eased the flow of foreign exchange in the system.
Analysts attribute the consumer goods giant’s deteriorating operating performance a weak consumer spending on home & personal care (HPC) items and durable electrical appliances (DEA), as preference has shifted to food.
A lot of unlisted companies, who produce close substitute at affordable price, are cannibalizing the sales of PZ Cussons Nigeria, while cheaply imported products via the porous borders have remained a drag on revenue growth.
PZ Cussons (Global) had said that its slow sales in its African market has been a drag on Group earnings, but it is putting in measures to control costs. It said it incurred cost due to the menacing gridlocks at the Apapa Ports that disrupts operations.
Its cost of sales ratio was 65.48 percent in 2016/17 financial year, but it now stands at 82.31 percent, which means the company has spent more on input cost in generating each unit of revenue.
However, the company has a solid balance sheet amid a tough and unpredictable macroeconomic environment. Its consistent dividend payment and a cash flow generated from operating activities of N1.16 billion (as at 19/20 financial period) means it can still fund future expansion plans..
Market sentiment towards PZ Cussons Plc (PZ) on the Nigeria Stock Exchange (NSE) has eroded value.
“Since 2017, market sentiment towards the PZ counter has been negative, with market capitalisation falling by more than half to N24.42bn (14 Oct 2019) from N57.57bn at the start of 2017,” said analysts at Chapel Hill Denham Limited.
The sharp drop in stock price can be attributed to a weak macroeconomic environment, as Nigerians are getting poor, with over 50 percent of the population living on less than $1.98 a day.
Over the last six months, Nigeria’s real economic growth though remaining positive has decelerated for 2 consecutive quarters, posting GDP growth of 2.10 percent in the first quarter (Q1) OF 2019, a decline from 2.38 percent recorded in the fourth quarter of (Q4) 2018 and growth of 1.90 percent in the second quarter (Q2) 2019, which marked another decline from Q1 levels.
BALA AUGIE
