Asset sale, interest income boost PZ Cussons’ earnings in 2023

Another outstanding profit growth can be expected for PZ Cussons Nigeria Plc in its 2022/23 financial year ending May, as profit from asset disposal and a boost in interest income add to growing sales revenue to double profit at the end of the third quarter.

The consumer goods manufacturing and marketing company is riding on the back of the same functions that jerked up its after-tax profit from less than N1.8 billion in 2021 to N6.7 billion in 2022.

The full year’s profit figure in the preceding year has been far exceeded with an after-tax profit of N11.2 billion the company posted at the end of its third quarter operations in February 2023.  That is, double the corresponding profit figure of N5.6 billion the company reported in the same period last year.

PZ Cussons’ interim financial report at the end of its third quarter ended February 2023 shows that it reaped a profit of N5.9 billion from the sale of a residential property at Ikoyi, from which it also raked in a profit of roughly N8.9 billion in the prior financial year.

The company is sustaining an upturn in earnings for the third straight year after it suffered a loss of over N7 billion in its 2020 financial year and the current year looks quite good to be its best earnings year on record.

A major boost in interest income is also happening for the company for the second year, which is providing an even much stronger upside force on the bottom line. Interest earnings multiplied close to eight times year-on-year to N3.3 billion at the end of the third quarter.

The figure is almost as good as net interest income with a relatively modest interest expense of N148.6 million for the period.

The company’s third level support for the profit leap so far is a combination of sales revenue improvement and cost moderation/reduction that has reinforced the core business. Group sales revenue grew by 16.7 per cent year-on-year to N87 billion at the end of the third quarter against an all-around slowdown in costs.

Impressive growth records in group sales seen over the past two years have extended to the third year. The strength in sales in the current financial year has been extended by management’s firm hold on costs — which provided room to convert the revenue gains into profit.

Cost of sales grew well below turnover at 10.5 percent to over N63 billion for the nine months of operations. The slowdown in input cost powered a major increase of 37 per cent in gross profit to N23.7 billion.

Cost of sales claimed a reduced share of sales revenue from 76.7 per cent to 72.7 per cent over the review period, which conversely improved gross margin.

Selling and distribution expenses also moderated at an increase of 14.3 per cent to N8.9 billion while administrative expenses declined by 3.7 per cent to less than N5 billion at the end of the period. An exchange loss of N4.7 billion occurred over the period though it did not encroach on revenue.

The favourable combination of revenue improvement and a general slowdown in costs recharged the company’s core operations with operating profit soaring from N211 million in the same period in 2022 to roughly N5 billion at the end of the third quarter.

The impressive earnings outlook for PZ Cussons in 2023, therefore reflects the combination of advancing operating profit, interest income boost, and another windfall from the sale of fixed assets.

PZ Cussons is taking advantage of the hike in interest rates on the side of interest earnings but is shielded from the cost side of it. Its balance sheet debts of close to N24 billion are mostly interest-free loans from its parent company.

The company earned N2.82 per share at the end of the third quarter, rising from N1.42 per share in the same period in 2022. It closed the 2022 financial year with per share of N1.50 and a cash dividend of N1.01 was paid out to shareholders.