PZ Cussons: Falling From Profit Into A Loss
PZ Cussons is losing sales revenue for the second financial year and turnover in 2020 seems headed back to the level attained as far back as 2016. The consumer goods manufacturing and marketing company suffered a profit drop for the second year in 2019, which worsened into a loss of N1.6 billion at the end of its half year operations ended November 2019.
The company’s cost-income structure is out of alignment needed to deliver profit. The major cost areas keep growing as sales revenue is declining. Input cost and selling/distribution expenses are the culprits. Their contrary movements caused a drop of 30 percent in gross profit in the 2019 financial year ended May 31 and over 72 percent fall in operating profit in the year.
This indicates that the cost of generating a naira of sales revenue has risen considerably for PZ Cussons. Cost of sales is accelerating rather than moderating in the current financial year and that has squeezed profit margins harder than recorded any time in recent years. The result is an accelerated drop in gross profit at the end of the company’s half year operations in November 2019.
Selling and distribution expenses have changed course in the current financial year and dropped by close to 10 percent at the end of the period. However administrative expenses more than countered the cost-saving made with an unexpected rise of 34 percent. That knocked off operating result into negative and painted the rest of the income statement red all the way to the bottom line.
PZ Cussons closed the half year operations in November 2019 with a turnover of N33.95 billion. This is a decline of 3.2 percent year-on-year, sustaining a drop of 7.7 percent in turnover in the preceding financial year. The company has been unable to maintain a track record of sales revenue improvement over the years. Its closing turnover figure in 2019 was in the region of the 2015 record.
Based on the performance at half year, the company may close the 2020 financial year next May with a turnover in the region of N69 billion. That was roughly its sales revenue figure about five years ago. Such a tight revenue environment clearly leaves no room for management to eke out profit.
The company faces stiff competition in the wide range of consumer products and home appliances it produces and sales. These include detergent, soap, cosmetics, refrigerators, air conditioners among others. The company’s household product names seem to be struggling for visibility within the competitive noise in the marketplace.
While the company is struggling with how to make a sell, it faces unfriendly cost behaviour, which is led by input cost. Against the decline in sales revenue, cost of sales grew by 7.4 percent year-on-year to N28.15 billion at the end of the second quarter. Cost of sales, therefore, consumed 83 percent of sales revenue, rising from less than 75 percent in the same period in the preceding financial year.
This is the highest cost margin the company has seen in many years. It is a sustaining increase from 69.5 percent in 2018 and 77 percent at the end of the 2019 financial year. Gross profit therefore fell by 34.4 percent to N5.8 billion at the end of half year operations, accelerating from a drop of 30 percent at the end of the 2019 financial year.
Selling and distribution expenses changed direction from an increase of over 11 percent in 2019 to a drop of 9.6 percent to N4.63 billion over the review period. The cost saving from there was however more than consumed by a leap of 34 percent in administrative expenses to N2.7 billion at the end of November 2019.
That sent operating result crashing by 187 percent into a loss of N1.5 billion at the end of the review period. Some other developments increased the loss figure at the bottom line. These include a foreign exchange loss of close to N51 million and an upsurge of 224 percent in net finance cost to N118 million, as interest earnings dropped.
PZ Cussons closed the half-year trading with a net loss of N1.58 billion against an after tax profit of N1.22 billion in the same period in the preceding year. Can the company step up sales revenue growth and create a room to return to profit in the second half of its financial year is the question mark on PZ Cussons in 2020. The strength to do that could not be seen at the end of half year operations.
The company lost 40 kobo per share at the end of half year operations in November, down from earnings per share of 31 kobo per share in the same period in the preceding financial year. It closed the 2019 operations with earnings per share of 25 kobo and paid a cash dividend of 15 kobo per share to shareholders.
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