PZ Cussons Plc is in the red for the second year after two years of sliding profit hit a loss of N7 billion at the end of its 2020 financial year in May. The consumer goods manufacturing and marketing company again closed the first quarter operations in August 2020 at a loss of N212 million.
A positive signal for the company however is a drop in the loss figure from over N1 billion year-on-year. Some strength is coming from a fundamental change of direction from a two-year drop in sales to a year-on-year improvement in the first quarter. There is also a sharp change of direction in input cost from growing against dropping sales last year to increasing below an improving turnover in the first quarter.
The indication is that the company’s management appears to be addressing the fundamentals that have constricted profit capacity in the preceding three years. The loss incurred last year was caused mostly by the inability to contain the cost of sales – which slashed gross profit by as much as one-half.
There is an upturn in the first quarter with a leap of 80 percent in gross profit to N4.9 billion. The cost of sales claimed a reduced share of turnover from 87 percent at the end of the preceding financial year to less than 74 percent at the end of the first quarter. The resulting strong gain in gross profit margin is one of the major developments in the company’s operations so far in its current financial running to May 2021.
The gain in gross profit flowed down through moderated operating expenses to reverse the company’s position from a huge operating loss of over N1 billion in the same period last financial year to an operating profit of N755 million at the end of the first quarter in August 2020. A huge foreign exchange loss, however, prevented the operating profit from getting down to the bottom line.
The company’s management is progressing in rebalancing its cost-income structure that lacked adequate room for profit in recent years. Costs are moderating generally as sales revenue is improving. The cost of generating a naira of sales revenue is declining for PZ Cussons. This is rekindling hopes for returning to profit in the course of this financial year.
PZ Cussons closed the first quarter operations in August 2020 with a turnover of N18.7 billion, an increase of over 18 percent year-on-year. The company lost sales revenue in the preceding two years and this year may see the first improvement in sales revenue in three years. It lost 8 percent of sales revenue in 2019 and 10 percent in the 2020 financial year ended in May.
PZ Cussons is a producer and marketers of a wide range of consumer products and home appliances. These include detergent, soap, cosmetics, refrigerators, air conditioners among others.
The company’s hopeful outing in the first quarter shows it is tackling the challenges it has faced in both selling and producing fronts. Improving sales and moderating expenses constitute the core of the positive changes that the company’s management has brought in this financial year.
At N13.8 billion at the end of the first quarter, cost of sales increased by 5.5 percent compared to 18.3 percent growth in turnover. The moderated increase in the cost of sales helped the company to rebuild gross profit from a 50 percent collapse at the end of the preceding financial year.
There was also a moderated growth in selling and distribution expenses at 3.4 percent year-on-year to close at N2.4 billion in the first quarter. This helped to dilute an increase of 22 percent in administrative expenses to roughly N1.8 billion over the review period. Operating profit recovered with a 174 percent leap from a loss of over N1 billion to N755 million year-on-year.
The cost saved all the way from input expenses to build operating profit was consumed by an upsurge in a foreign exchange loss of more than N1 billion in the first quarter from less than N64 million in the same period last year. This is the development that blurred the improvements in the company’s cost-income balance and caused the loss the company posted at the end of the first quarter.
Exchange loss has been growing in the recent year from N444 million at the end of 2019 financial year to N945 million in 2020. The upsurge in the first quarter is the decisive factor this financial year that stands between PZ Cussons and returning to profit.
The company closed the first quarter operations with an after-tax loss of N212 billion, which is a drop of close to 81 percent from the loss figure in the same period in the preceding year. This extended to a net loss of N306 million attributable to majority shareholders.
The company lost 5 kobo per share at the end of the first quarter operations, down from a loss per share of 28 kobo per share in the same period in the prior financial year. The losses have eroded the company’s equity capital from close to N46 billion in 2017 to N34 billion at the end of the first quarter.
Comments are closed.