PZ Cussons Plc has pulled back from a loss of N212 million in the first quarter to build a profit of N821 million at the end of its second quarter trading ended November 2020. The consumer goods manufacturing and marketing company has consequently allayed concerns of possibly building a loss for the second year after closing the preceding financial year at a loss of N7 billion.
Foreign exchange losses are still on the rise but two positive signals observed in the first quarter were reinforced in the second and were the key functions of the company’s turnaround. The first is a fundamental change of direction from a two-year drop in sales to a year-on-year improvement. This was sustained at the end of the second quarter with turnover up by 10 percent year-on-year.
The second is cost saving from input cost, which improved further in the second quarter from an increase in the first quarter to a decline in the second. At N27 billion at the end of the second quarter, cost of sales declined by 3.3 percent.
The improvement in revenue against a decline in cost of sales was the key turnaround strategy that PZ Cussons applied in the second quarter to pull out of the red. The developments affirm our observation at the end of the first quarter that “the company’s management appears to be addressing the fundamentals that have constricted profit capacity in the preceding three years”.
The loss the company incurred last year was caused mostly by inability to contain rising cost of sales – which slashed gross profit by as much as one-half. The current year is seeing a reversed move with a decline in input cost and a resulting leap of 75 percent in gross profit at the end of the company’s half year trading.
Cost of sales claimed a reduced proportion of turnover from 87 percent at the end of the preceding financial year to less than 73 percent at the end of the second quarter. A strong gain in gross profit margin is one of the major favourable developments in the company’s operations so far in its current financial running up to May 2021.
A challenge on the side of the cost came from administrative expenses, which rose by 34 per cent year-on-year to N3.6 billion. This was however moderated by a slight decrease in selling and distribution cost.
The gain in gross profit was good enough to flow down to operating profit. It reversed the company’s position from an operating loss of N1.5 billion in the same period in the last financial year to an operating profit of roughly N2 billion at the end of the second quarter in November 2020.
This was reinforced by an apparent windfall from other income, which multiplied from less than N88 million to N1.8 billion over the review period. Also, a drop of 80 percent in finance cost enabled the company to shift from a net finance cost to a net finance income status at the end of the period.
These gains helped the company to contain a huge foreign exchange loss of N2.8 and yet stayed profitable at the end of the second quarter. The company this time scaled through the foreign exchange loss that caused the loss it posted in the first quarter. The upturn reflects a sustaining rebalancing of the company’s cost-income structure that had lacked adequate room for profit in recent years.
Costs keep moderating generally as sales revenue is improving. The cost of generating a naira of sales revenue is still declining for PZ Cussons. Our expectation that “this is rekindling hopes for returning to profit in the course of this financial year” was realised at the end of the second quarter.
PZ Cussons closed the second quarter operations in November 2020 with a turnover of N37.4 billion, an increase of 10 per cent year-on-year. Having lost sales revenue in the preceding two years, this year is promising to see the first improvement in turnover in three years.
The company lost 8 percent of sales revenue in 2019 and 10 percent in the 2020 financial year ended May. PZ Cussons produces and sells a wide range of consumer products and home appliances. These include detergent, soap, cosmetics, refrigerators, air conditioners among others.
The company’s fruitful outing in the second quarter indicates that management’s effort in tackling the challenges it has faced in both selling and producing fronts is yielding fruits. Improving sales and declining expenses remain the centre of the positive changes the company’s management has brought in this financial year.
Rising exchange loss remains a major factor to watch, as it maintains a rapid increase for the third year running – from N444 million at the end of 2019 financial year to N945 million in 2020 and already N2.8 billion at half year of the 2021 financial year.
The company closed the second quarter operations with an after-tax profit of N821 million, which is a rebound from a loss of N1.5 billion in the same period in the preceding financial year.
The company earned 21 kobo per share at the end of the second quarter operations, rising from a loss per share of 40 kobo in the same period in the prior financial year.
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