PZ Cussons: Profit may drop on flat revenue

PZ Cussons is unable to grow sales revenue for the fourth year running and that can be expected to register adversely on profit performance in the 2015 financial year ending May. Sales revenue has stagnated at a little above N70 billion since 2012 and the current year’s performance so far is indicating that revenue growth might be marginal still.

A flat growth in turnover at the end of the third quarter led to a drop of 28% in after tax profit and the drop is expected to sustain to full year. The company reported a turnover of N52.89 billion at the end of the third quarter, which is a flat growth of 0.6% year-on-year. It is however an accelerated growth from N31.66 billion the company recorded in the second quarter.

The improved revenue growth rate is expected to be maintained in the final quarter. Sales revenue is therefore projected at N74.12 billion for PZ Cussons at the end of the current financial year. This will be a marginal improvement of 1.6% over the sales revenue figure in the preceding year.

Inability to grow sales revenue is a major challenge that cuts across the various sectors and industries. Low consumer spending and resistance to price increases are affecting sales volumes of even the basic consumer goods.

Given the inability to grow sales revenue, the company’s profit capacity has been undermined by rising costs. Two major cost elements claimed increased proportions of sales revenue in the third quarter. These are administrative/distribution expenses, which rose by 7% to N38.54 billion year-on-year and interest expenses, which rose by close to 58%. Interest expenses remain relatively low for PZ Cussons and there was no interest bearing debts in the balance sheet as at the end of the third quarter.

Rising costs depressed profit margin from 7.4% in the corresponding period last year to 5.3% at the end of the third quarter. That resulted in a drop of 27.9% in after tax profit to N2.79 billion year-on-year. This is however an accelerated growth from the profit figure of N1.44 billion the company reported at the end of the second quarter.

Net profit is projected at N3.93 billion for PZ Cussons at full year. This would be a drop of 27.7% from the full year profit figure in 2014. The company’s profit declined by 4.5% in 2014 and a more rapid drop is likely in the current year based on the current growth rate.

Earnings per share declined from 97 kobo in the same period last year to 70 kobo at the end of the third quarter. Full year outlook indicates earnings per share in the region of 99 kobo for PZ Cussons in 2015. This would be a drop from the N1.28 the company reported in 2014. It has paid an interim dividend of 20 kobo per share for the current financial year while more can be expected at full year. The company paid a total cash dividend of 80.91 kobo last year.

Major developments in the balance sheet include a drop of 23.3% in cash and bank balances and a drop of 18.8% in trade and other receivables. Cash flow position continues to show net cash decrease, which is depleting the cash balances rapidly. This seems to explain a drop of over 67% interest income at the end of the third quarter, which has changed the company’s position from net interest income in 2014 to net interest expenses in 2015.