Tuesday, July 26, 2016 6.55PM / FBNQuest Research
Event: PZ Cussons Plc full year 2016 analyst presentation
Implications: Earnings decline expected for Nigerian subsidiary
PZ Cussons Plc, parent company of PZ Cussons Nigeria, had its full year 2016 analyst presentation today.
Group revenue was flat y/y at GBP821.2m while PBT declined by -5.3% y/y to GBP103.0m. Nigeria accounts for around 40% of sales.
The company had stated in its trading statement released in June that an exceptional charge of around GBP17m is expected due to an fx hit in Nigeria i.e. sourcing US dollars from the secondary market. Actual exceptional charge for the year was GBP19.3m, bringing PBT post-exceptional charges to GBP83.7m.
Management acknowledged tight liquidity and increased cost in Nigeria due to the scarcity of foreign exchange. A 40% devaluation of the naira, in addition to extreme competition continues to pose challenges to business growth. As a result, the company tried to manage price points and products sizes.
The Home Care and Personal Care segments managed to maintain market share and revenues. The company adjusted prices upwards in order to restore margins. However, in the Electrical business, revenue and profits declined due to the squeeze in consumer income. Management’s strategy was to change the supply chain and resize its electrical products – fridges, air conditioners etc. to suit consumer wallet.
There were strong performances in the Nutricima and PZ Wilmar Food businesses. PZ benefitted from the consolidation of Nutricima in 2015. For the Wilmar business, due to the restriction on fx availability for imports, palm oil was sourced locally, however in reduced quantities. Hence, they focused on growing the higher margin consumer packaging segment of the business. As a result, sales doubled y/y for Mamador and Devon Kings’ brands.
Following the new flexible exchange rate regime, a reasonable amount of backlogs were cleared. The company is now better able to access fx which is sourced at between N280-290/US$.
Regarding security issues in Northern Nigeria, management is pleased with the progress made by the Nigerian government. The relative calm seen in recent times has eased trading operations in the region.
Looking ahead, PZ Cussons believes it is well equipped to carry on business operations in Nigeria given that fx liquidity challenges improves. We look forward to the release of PZ Cussons Nigeria results in the coming days. We expect 2016E sales and PBT to decline by -5.0% y/y and -51.9% y/y to N69.4bn and 3.2bn respectively.