Introduction
A thorough analysis of PZ CussonsPlc current financial report shows that it is yet growing. It was able to step up the level of its business activities as shown by a growing turnover base. It was also able to increase profit during the course of the year. Profitability ratios for the year were a progression over the preceding year’s. Profit margin improved, as did return on assets, return on equity, and pre-tax profit per employee.
Truth be told, the conglomerate’s results for the 2023 financial year was extremely commendable, given the stressful operational environment in Nigeria for the review year.
Growth indices
For its 2023 financial year, PZ Cussons recorded a level of growth in all of its major parameters. First to receive a boost was the company’s gross earnings. Gross earnings for the year stood at N113.96 billion, 14.5 percent higher than the N99.5 billion recorded in the preceding year. This 14.5 percent growth rate is as compared to a higher growth rate of 20.5 per cent in 2022.
Because direct costs grew at a slower pace than turnover did, gross profit advanced by 35.6 percent to N32.9 billion. After deducting operating expenses from the gross profit and adding other income (including interest income), PZ Cussons was left with a pre-tax profit of N20.46 billion, a whopping 104.4 percent higher than the N10.01 billion pre-tax profit recorded in the erstwhile year. This 104.4 percent growth rate is as compared to a pre-tax profit growth rate of 213.8 percent in the preceding year.
After-tax profit (which was also the same as distributable profit) grew over the preceding year’s by as much as 114.2 percent to N14.35 billion. For the first time in a while, the conglomerate chose not to dedicate any portion of its distributable profit to dividend. Thus, shareholders did not receive any dividend.
Total assets for the year stood at N166.38 billion, up from N109.47 billion in 2022 and translating into a 52.0 percent growth rate. Total liabilities also grew by 64.5 per cent to N118.0 billion from N71.73 billion while shareholders’ funds grew by 28.1 per cent to N48.36 billion from N37.74 billion in the erstwhile year.
Profitability ratios
For the year, operating margin (which calculates what proportion of turnover is used to finance operations) was 21.7 percent, slightly lower and therefore better than the 24.7 percent that was recorded in 2022. What this means is that the probable margin for PZ Cussons to be profitable expanded, albeit slightly during the course of the year.
Perhaps because of this, the profit margin for the year increased. Profit margin for 2023 stood at 18.0 percent, higher than 10.1 percent in the preceding year. What this means is that N18.00 made it to the profit position for every N100 earned in 2023, up from N10.10 in 2022.
Return on assets (ROA) followed the same pattern. ROA for the year increased to 12.3 percent from 9.1 percent in 2022, meaning that every N100 worth of assets deployed contributed N12.30 to the pre-tax profit for the year, higher than the N9.10 recorded in 2022.
Also, return on equity (ROE) grew to 29.7 percent from 17.8 percent, meaning that every N100 worth of equity employed contributed N29.70 to the after-tax profit in 2023, up from N17.80 in the prior year.
Our examination of this conglomerate’s profitability ratios shows that the company recorded quite a profitable year in 2023, which was not the case for many other manufacturing companies in Nigeria.
Staff matters
In terms of staff matters, the conglomerate did not do too shabbily for the year ended December 31 2023. On the average, each employee contributed N20.54 million to the company’s pre-tax profit, commendably up from N9.63 million in the prior year.
To this end, PZ Cussons reciprocated by increasing its staff cost per employee. On the average, wages and salaries earned by each staff increased to N8.04 million during the course of the year, up from N7.23 million in the preceding.
It is however worthy of note and laudable that despite increasing average staff costs, the company did not actually put itself out more than was necessary. Staff costs as a proportion of turnover decreased (and by so doing, improved) to 7 per cent.
Other ratios
For the year, PZ Cussons’ short-term assets increased to N148.1 billion while its short-term liabilities increased to a collective N94.68 billion. The interplay between these two had an upping effect on its current ratio. At 1.6 times (higher than 1.4 in the preceding year), current ratio was on par with industry standards. What this means is that for every one Naira of short-term obligations, the company had N1.60 in short-term assets, and was more than able to meet obligations as at when due.
The company had a debt-to-equity ratio of 2.4 and this shows that the company is using N2.40 of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the company is using N3.40 of total capital for every N1.00 of equity capital.
PZ Cussons Vs Nestle: PZ Cussons larger and superior
PZ Cussons Plc and Nestle Nigeria Plc are competitors, and both have been operating in the Nigerian conglomerate scene for years. While Nestle is currently the bigger of the two in terms of sales generation and assets employment, PZ Cussons is better when it comes to profit retention. Of the six profitability ratios we examined, Nestle only took the lead in turnover growth rate, while PZ Cussons took the lead in the remaining five.
Sales generation and profit retention
As usual, Nestle recorded more sales in 2023 than PZ Cussons did. Also, Nestle’s growth rate for the year was much better than PZ Cussons.’ This said, PZ Cussons excelled better in translating its sales into profit. It had a positive pretax profit growth rate as compared to Nestle’s decline rate. It also had a profit margin, as compared to Nestle’s loss margin for the year under review.
Returns
PZ Cussons recorded better returns on assets and on equity for the 2023 financial year. Return on assets (ROA) and return on equity (ROE) were 12.3 percent and 29.7 percent respectively. Meanwhile, Nestle had negative returns. For Nestle, ROA was negative 17.9 per cent while ROE was negative 101.9 per cent.
Conclusion
In an operating environment where most companies recorded either negative or slowed down profitability ratios, PZ Cussons is an exceptional, a very laudable one. Its ability to not only generate sales but also to maximise profits for the 2023 financial year is indeed commendable.
