PZ Cussons declares new strategy for sustainable profitable growth
PZ Cussons has declared a new mantra of its new strategy for sustainable profitable growth which is building brands for life for today and for future generations. The aptly coined mantra reflects its enviable 120-year heritage as one of the oldest companies to operate in Nigeria.
The mantra also hopes to address the more recent challenge of returning to sustainable profitability and breaking from a habit of losses. The company has most recently been synonymous with reporting losses in the first Q1 of its financial year, at least since 2016. This trend however stopped last year.
The company released its first quarter results for the period ending August 2022 where it indicated revenue increased by 23 per cent to N27.392 billion from N22.204 billion in the prior period of 2021.
Profit After Tax also grew by 464 per cent to N1.303 billion from N231 million in Q1 2021/22 as it recorded back-to-back profits for the first quarter of its financial year.
A closer look at the path to profitability however reveals a rather familiar pattern. As it were in the prior year, profits got a boost from other income and not its mainstay of a combination of Home & Personal Care and Durable appliance businesses.
Just like in 2021/22FY, where the group moved out of a loss position due to revenue from “other income” derived from the disposal of assets, the swing in profits in Q1 2022/23 to the N1 billion mark, the highest in over five years, is on the back of high-interest income from interest received. The company did not provide notes breaking down components of its interest income.
Stripping interest income of N650 million, the company still reported a profit but at very slim margins. For example, gross profit was 22 per cent this quarter compared to 26 per cent same quarter last year. Operating profit was N734 million about 2.6 per cent of sales.
It is clear that PZ Cussons is not generating enough revenue to offset rising operating costs and overheads, mostly due to high shipping and logistics costs, port congestion, and several other factors. In its final year results for the period ended May 2022 (released just this week) profits were also boosted by the sale of property in Ikoyi.
The company’s survival is currently hinged on its strong balance sheet which is free of external debts but loaded with related party borrowings akin to a bailout. The company carries a related part payable of N39 billion and also obtained a fresh “non-interest bearing loan” of $40.26 million which when combined gives the company a large cash pile of N53.4 billion which in reality is owned by the majority shareholders.
Prior to the release of Q1 2022/23 earnings results (June 1 – August 30, 2022), PZ Cusson’s share price lost N3.45 (From N11.50 to N8.05 per share) due to deteriorating investors’ sentiment.
However, by the close of trading on, it had moved to N9.20 per share, recording a 9.5 per cent gain over its previous closing price of N8.40. Overall, it has a 50.8 per cent year-to-date gain, having started the year with a share price of N6.10, ranking it 15th on the NGX in terms of year-to-date performance. These are all signs of a stock primed for a scramble.
