Nigeria: PZ Migrate to Profit Amid FX Loss

10 January 2022

PZ Cusson Nigeria financial year result and accounts for the period ended May 31, 2021 showed a performance that migrated from loss to profit, driven by significant increase in revenue and non-core business income.

Interplay between hike in foreign exchange loss and significant increase in cost of sales had threatened the multinational company's profit & loss figures recovery in the year under review.

The company did not declare a dividend but the final dividend for the year ended May 31, 2020 will be paid during the year ended may 31, 2021, while final dividend for the year ended May 31, 2019 was paid during the year ended May 31, 2020.

For the year under review, the management of PZ Cusson Nigeria is to pay a final dividend of 25 kobo per share amounting to a total dividend of N992.6million, subject to the approval of shareholders at the Annual General Meeting (AGM) taking place this month in Lagos.

The company's revenue hit a 5-year high in 2021, driven by growth recorded in its home and personal care products and durable electrical appliances amid low purchasing power due to double-digit inflation, among other factors.

The breakdown of revenue in the last 5-year revealed that PZ Cusson Nigeria reported N82.58billion revenue in 2021, an increase of about 23.3per cent from N66.99billion reported in 2020.

PZ Cusson Nigeria had reported N74.34billion revenue in 2019, a decline of 7.7per cent from N80.55billion reported in 2018 and closed 2017 with revenue of N78.22billion.

The company's home and personal care products includes morning fresh, Zip, Canoe, Premier, Excel, Joy, Stella, Venus, Imperial leather, Cussons Baby, Original Source, Carex, Robb, among others.

The Dural electrical appliance of PZ Cussons includes Thermocool Refrigerators, Freezers, Televisions, Generators, Air conditioners, Washing Machines, among others.

For the year under review, the company reported 23 per cent increase in its Home and personal care products revenue to N47.8billion in 2021 from N38.94billion reported in 2020, while revenue from Durable electrical appliances gained 24 per cent to N34.74billion in 2021 from N28.05billion reported in 2020.

Revenue generated in Nigeria increased from N64.97billion in 2020 to N79.2billion in 2021, while revenue from export grew by 66.75per cent to N3.37billion in 2021 from N2.02billion reported in 2020.

Cost of sales

Cost of sales for the period grew by nearly two per cent to N59.48billion in 2021 from N58.32 billion reported in 2020.

Consequently, Cost of sales/revenue dropped to 72.03 per cent in 2021 from 87.06 per cent in 2020. The growth in revenue contributed to 166.42per cent increase in gross profit to N23.09billion in 2021 from n8.67billion reported in 2020. This dragged gross profit margin to 27.9 per cent in 2021 from 12.94 per cent in 2020.

PZ Cusson Nigeria is exposed to commodity price risk arises from specific needs to buy quality and quality to meets its manufacturing standards. These raw materials include crude palm oil, tallow, sodium silicate and linear alkly benzene. The company has been effective with its method of purchasing these materials in advances and this is based on management's past experience with price movement in Nigeria.

On total operating cost, PZ Cusson Nigeria reported N15.95billion in 2021, 1.6 per cent increase from N15.69billion reported in 2020, driven primarily, N50.12billion changes in inventories in finished goods and work in progress in 2021 from N50.34billion reported in 2020.

The breakdown revealed that selling and distribution expenses dropped by 7.4 per cent to N9.33billion in 2021 from N10.08billion in 2020, while administrative expenses rose by 19.3 per cent to N6.54billion from N5.58billion reported in prior year.

Due to operating environment, the company recorded a 38.02 per cent decline in impairment of trade receivables to N85.06million in 2021 from n137.24million in 2020.

The impairment loss as at May 31, 2021 related to several customers that are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.

Interestingly, in the year under review, the company report Exchange loss of N5.95billion as against N945.86million reported in the prior year. Closing foreign exchange rate in 2021 was N412 per dollar from N389.86 per dollar in 2020.

On this, operating profit closed 2021 at N1.19billion as against N7.97 operating loss recorded in 2020.

Non-core business income

PZ Cusson Nigeria reported N2.08billion income from non-core business income in 2021 from N179.14million in 2020.

Key factors that contributed to growth in non-core business income was N179.03million income from scrap sales and rental income in 2021 from n177.64million in 2020, while profit on the disposal of fixed assets moved from N1.5million to N1.9billion in 2021.

According to the company: "The profit on disposal relates mainly to the sale of part of factor land at Ikorodu. The portion of the land sold to FrieslandCampina Wamco Nigeria is approximately 67,733,235 square metres, the company received the sum of N2.124billion as consideration for the sales resulting in profit on disposal of N1.899billion subject to a capital gains tax of N187.35million."

From the profit & loss figures, PZ Cusson Nigeria reported 21.8 per cent decline in interest income to N238.56million in 2021 from N304.97million in 2020 as interest cost dropped significantly by 84.3 per cent to N71.48million in 2021 from N454.23million reported in 2020.

Meanwhile, the group closed the year with N3.44billion profit before tax from loss before tax of N7.94billion reported in 2020 financial year. With tax expenses of N1.7billion, PZ Cusson Nigeria reported profit of N1.69billion from loss of N7.21billion reported in 2020.

Home and Personal Care contributed N1.88billion to the group profit before tax in 2021 while Durable electrical appliances added N1.56billion in the same year.

Home and personal care products accounted for N6.35billion loss before tax in 2021 and Durable electrical appliances recorded a loss before tax of N1.59billion in 2020. Profit before tax margin moved from negative 11.9 per cent in 2020 to 2.18 per cent in 2021. With the positive performance in profit, the group migrated from a loss of N1.74 basic and diluted loss to N0.37 basic earnings per share in 2021.

Trade, Payable Contributes to liabilities

PZ Cusson Nigeria closed the year with N43.74billion in trade and other payables from N37.2billion, contributing 82.85 per cent of the total liabilities in 2021 from 83.08 per cent in 2020. Included in the group's trade and other payable as at May 31, 2021 and May 31, 2020 are balances due to the related parties of N24.2billion and N27.9billion respectively, while that of the company is N28.2billion and N20.9billion respectively.

The company closed 2021 with a total liability of N52.79billion from N44.78billion in 2020. The breakdown of total liabilities showed that current liabilities closed 2021 at N46billion from N38.06billion in 2020.

Total non-current liabilities grew by 1.01per cent to N6.79billion in 2021 from N6.72billion in 2020. Meanwhile, PZ Cusson Nigeria reported a 12 per cent increase in total assets to N87.34billion in 2021 from N78.03billion reported in 2020.

The group's total non-current assets dropped by 7.3 per cent to N26.6billion in 2021 from N28.7billion in 2020, while total current assets grew by 23.11 per cent to N60.7billion in 2021 from N49.33billion in 2020.

Consequently, the group's total liabilities/total assets grew to 60.44 per cent in 2021 from 57.38 per cent in 2020.

From the balance sheet position, total equity gained four per cent to N34.55billion in 2021 from N33.26billion reported in 2020.

The group's working capital of PZ Cusson Nigeria closed 2021 at N14.73billion in 2021 from N11.26billion recorded in 2020.

Attracting Investors

The group and company are controlled by PZ Cusson (Holdings) Limited, incorporated in the UK, which owns 73.27 per cent (2020: 73.27 per cent) of the group and company's shares. The remaining 26.73 per cent (2020: 26.73 per cent) of the shares are widely held.

The recent performance by PZ Cusson Nigeria has not attracted local/foreign investors to its stock. With outstanding shares of 3,970,477,045.00, and trading at N6.70 as at January 7, 2022, earnings and dividend to shareholders are two intrinsic factors eroding stock price on the Nigerian Exchange Limited (NGX). The company needed to sustain its revenue growth and source materials locally in a move to reduce cost of sales and drive bottom-line performance.

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