PZ Cussons Nigeria PLC manufactures and sells consumer products and home appliances. The Company’s product line includes soaps, detergents, toiletries, feminine hygiene products, pharmaceuticals, cosmetics, packaging materials, refrigerators, freezers, and air conditioners. PZ is also a wholesale distributor of milk.
The company recently released its second quarter results for the period ended November 30th 2016, which shows an unimpressive performance as the company’s earnings declined, due to falling revenues.
For the period ended November 28, 2015, PZ Cussons’s sales reduced by 3.29 percent to N30.61 billion, compared with N31.65 billion recorded in 2014.
The fall in revenue can be attributed to pressured consumer wallets, intense competition from companies cannibalising sales with similar products, and the disruption by the marauding Boko Haram, in the northern part of the country.
Indeed 2015 was a tough and horrendous year for companies in Africa’s largest economy, as a weak economy dampened consumer spending, hence leading to a state of languid.
To exacerbate the anemic position of consumer further is the fuel scarcity of last year, where many people paid twice for transport fare. These uncertainties squeezed the wallet of people who had little money for consumption.
Nigeria’s consumer price inflation stood at 9.6 percent year-on-year in December, up 0.2 percentage points from November, and still above the central bank’s target upper limit of nine percent, the national bureau of statistics, said, in January.
Economic growth has slackened, which slowed to 2.80 the third quarter of 2015, the lowest since 1999; this is set to remain subdued.
PZ Cussons cost of sales declined by 3.36 percent to N22.30 billion in 2015 as against N23.07 billion in 2014. Cost of sales ratio remained flattish at 72.85 percent in the period, under review. This means the company spent N72 on input cost to produce each unit of product.
The slight increase in cost of sales was driven by the company’s investment in streamlined supply chain, favourable prices of palm oil in the international markets and the replacement of import raw materials with local ones.
PZ Cussons was inefficient in managing directing costs attributable to projects, as gross profits moved by 3.41 percent to N8.31 billion in 2015 as against N8.58 billion in 2015; a gross profit margin of 27.14 percent in the period under review, compared with 27.10 percent in 2014.
Drop in net income despite fall in operating expenses
During the period under review, net income fell by 45.92 percent to N779.45 million as against N1.44 billion in 2014. Profit before tax (PBT) also dropped by 40.64 percent to N1.15 billion in the period under review from N1.94 billion in 2014.
The fall in profit is despite a reduction in operational expenses by 5.05 percent to N7 billion in 2015 as against N6.66 billion in 2014. Operating expenses ratio increased to 22.86 percent in 2015 as against 21.04 percent in 2014.The reduction in operating expenses occurred, despite the company’s increased investment in branding and innovation, to help increase its clientele base and market share.
Finance costs surged by 507.19 percent to N303.10 million in 2015 from N49.92 billion in 2014.
Strong assets base backed by cash and cash equivalents
Total assets showed a growth of 8.10 percent to N72.84 billion in 2015 from N67.38 billion in 2014; driven mainly by a slight increase in property plant and equipment to N25.57 billion in the period under review from N25.22 billion.
Current assets were up by 12.04 percent to N47.24 billion in 2015, compared with N42.17 billion in 2014; driven mainly by a 144.48 surge in cash and cash equivalent to N5.69 billion in 2015, compared with N2.32 billion last year.
The company’s current ratio, which measures the ability of a firm to meet obligation as at when due, increased to 0.56x in 2015 from 0.46x in 2014. The 0.56x current ratio is lower than the industry average of 2.1x.
Debtors and other receivables were down by 6.45 percent to N16.75 billion in 2015 as against N17.91 billion in 2014. Trade inventories were up by 12.09 percent to N23.55 billion in 2015, compared with N17.91 billion in 2014. A reduction in inventories in the warehouse will help bolster sales and if this increase trickles down to the bottom line, shareholder’s wealth will be maximised.
PZ Cussons’s total current liabilities fell by 36.08 percent to N26.62 billion in 2015 from N19.56 billion in 2014. Trade and other payable reduced by 38.81 percent to N24.75 billion in 2015, compared with N17.83 billion in 2014.
BALA AUGIE
