Pz Cussons Nigeria Plc is feeling the negative impact of the harsh operating environments as first quarter performance falters, a phenomenon that is crimping the growth of consumable goods firms in Africa largest economy.
For the period ended August 30 August 2015, Pz Cussons net income fell by 33.33 percent to N427.85 million from N641.70 million last year. Sales were dropped by less than one percent to N14.95 billion as against N15.02 billion the previous year.
“PZ Cussons UK, parent company of PZ Cussons Nigeria, recently stated in its trading statement that the tightening in foreign currency rules in Nigeria is restricting dollar availability for certain items,” Kingston Nwosu , equity research analyst with FBN Capital Limited, a Lagos based investment firm in an email note to BusinessDay.
“In addition, the challenging macroeconomic environment as well as the extremely competitive market continues to post major challenges,” said NNwosu.
Fast Moving Consumable Goods firms in Africa largest economy been groaning under an unpredictable economy that is notorious for high interest rates, rising inflation, bad roads, lack of reliable electricity and security challenges in the north part of the country.
The Central Bank has twice devalue the naira to fend off the impact of a 50 percent drop in the price of oil, a headwind that has deflated the foreign reserve and culminated in dwindling government revenue.
The naira was little changed after the central bank kept its key interest rate at a record high 13 percent, trading at 199.05 per dollar at 3:21 p.m. in Lagos, Nigeria’s commercial hub.
The devaluation of the currency has left consumer goods firms with huge production costs as they import 55 percent of raw materials to meet production.
Analysts across broad say rising unemployment in the country and creeping inflation have weakened the purchasing power of consumers who no longer patronize Pz Cussons products as they used to in the last 10 to 15 years.
Nigeria’s consumer inflation was at 9.3 percent year-on-year in August, up 0.1 percent from July, and staying above the central bank’s target upper limit, the national bureau of statistics (NBS).
BusinessDay’s calculations shows PZ Cussons took a one two punch from rising production costs as cost of sales increased to 72.37 percent in 2015 from 66.06 percent last year. This means the company is spending more on input costs to produce each unit of products.
PZ Cussons gross profit increased to 27.62 percent in 2015 compared with 26.91 percent last year.
Gross profit moved by 2.22 percent in the period under review to N4.13 billion as against N4.04 billion. The single digit rise in Gross profit means the consumer goods firm is not efficient in managing direct costs attributable to projects.
Industry players say the way forward for the new government and the incoming minister for Industry and trade is to formulate policies that will enable consumer goods firms in Africa largest oil producer tap into its huge population that crave consumption.
PZ Cussons total assets remained flattish at N67 billion while shareholders fund increased by less than one percent to N44.10 billion.
The company’s share price closed at N26 on the floor of the exchange while market capitalization was N103.26 billion.
“On an annualised basis, the results indicate that PZ is tracking well behind consensus full year 2016 sales and PBT estimates of N75.2bn and N6.7bn respectively. The stock has gained 10.1% ytd (vs -11.1% ytd for the ASI). We expect it to shed some of these gains; we also expect to see downward revisions to 2016E earnings forecasts,” Nwosu.
BALA AUGIE
