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PZ Cussons warns crisis in Nigeria hurts business

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PZ Cussons warns crisis in Nigeria hurts business

January 25, 2012

*Profit before tax falls 11.7% in first half     *Stakeholders fear job losses in FMCG firms

British soap maker, PZ Cussons, warned it was likely to report disappointing full year profits, pointing to political upheaval in Nigeria, challenging trading conditions in Australia and high raw materials costs.

Shares in the maker of Imperial Leather soap fell as much as 8.4 percent on Tuesday, after it reported an 11.7 percent drop in first half pretax profit and said full-year results would be towards the bottom end of current market expectations.

It had already issued a profit warning in December, as pressure on consumers compounded the pain of high raw materials costs and adverse moves in exchange rates, Reuters reports.

PZ Cussons said it was monitoring social and economic tensions in Nigeria closely, after gun and bomb attacks by Islamist insurgents in the northern city of Kano last week killed at least 186 people.

Analysts say the consequence of the upheavals in Nigeria on PZ Cussons is an indication that other Fast-Moving Consumer Goods (FMCGs) may be in for a bigger challenge, saying their bottom lines will be adversely affected and by extension job losses are likely if things do not change for the better.

They advised the Federal Government to urgently tackle the security challenges in the country, which they said is anti-investment.

FMCG refers to those retail goods that are generally replaced or fully used up over a short period of days, weeks, or months, and within one year. This contrasts with durable goods or major appliances such as kitchen appliances, which are generally replaced over a period of several years.

Nigeria, PZ Cussons’ biggest single market, accounts for around 30 to 40 percent of the group’s total revenue.

“The Nigerian government removal of part of the fuel subsidy, which caused a week-long strike, is good for the medium-long term health of the economy but has caused disruption in the short term that we have had to factor in this month,” Chief Financial Officer, Brandon Leigh, said.

“It is part of being in emerging markets and so, for the short term, it is volatile but medium-long term, we are optimistic about Nigeria being a key growth market,” he added.

The company, which also makes Carex hand soap and recently bought the Fudge hair care brand, said profit before tax in the six months to November fell to 39.3 million pounds ($61.3 million) from 44.5 million pounds a year earlier, as higher costs helped undermine a 10.5 percent rise in revenue to 414 million pounds.

Shares in FTSE 250-listed PZ Cussons were down 6.3 percent at 291.5 percent, having earlier fallen as low as 284.88 pence, to levels not seen in almost two years.

Panmure analyst, Graham Jones, who has a ‘hold’ rating on the stock, said that although strikes in Nigeria had been called off, he had still reduced his full year earnings forecast for the group by 4.6 percent.

PZ Cussons chairman, Richard Harvey, said the company anticipated difficult trading in some markets for the rest of the year.

“In particular, we are closely monitoring the current economic and social tensions in Nigeria which may further impact the year-end outturn,” Harvey said in a statement. “Overall, we anticipate that results for the full year will be towards the bottom end of the range of current expectations.”

Nicola Mallard, an analyst at Investec Bank, said the company had been counting on growth in Nigeria to help counter difficult trading in more mature markets.

Trading conditions in Australia , Thailand and the Middle East remained challenging, the company said, leading to lower profits at its Asia division.

The company said its balance sheet remained strong, however, and that it had the appetite to pursue other deals following its acquisition of Fudge for 25.5 million pounds.

Source: Businessday



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