TheCable

PZ Cussons lost profit for the second year at the end of its 2015 financial year ended May. Despite a step up in profit growth in the final quarter, the company’s profit decline at a wider margin than happened in 2014. Close to 40% of the company’s full year after tax profit of N4.57 billion was earned in the final quarter.   

The company’s weakening profit capacity reflects its inability to grow sales revenue for the third year running. The company has not been able to push sales revenue reasonably above the figure it posted in 2013. In line with our earlier projection, the revenue weakness registered adversely on profit performance in the 2015 financial year.

Large companies had been resisting operating difficulties until last year and now even the diversified conglomerates are gradually going the way of small operators that have since been silenced by loss of capacity to produce and to sell. Diversified operation that used to be a guarantee for stable growth in revenue and profit has been failing even the conglomerates since 2014.

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.

Turnover was flat for PZ Cussons in the 2014/15 financial year at about N73.13 billion, which has hardly changed from the sales revenue of N72.16 billion the company generated three years ago in the 2012/13 financial year. Flat revenue against rising cost and depreciating local currency means significant loss of sales volume.

Given the inability to grow sales revenue, the company’s profit capacity weakened under rising costs. Two major revenue drops and one major cost item accounted for the profit drop the company reported in 2015. The income lines are other income, which fell by 56.6% to N122 million at the end of the year and interest income, which dropped by about 55% to about N229 million during the same period.

The company succeeded in keeping all other major costs under control except interest expenses, which soared by over 215% to N445 million during the year. This is despite the absence of any interest bearing debts in the books of the company from the beginning of the financial year to the end. Signs of cash flow pressure have been indicated by the rapid depletion of cash reserve, which could lead to a build-up of balance sheet debts in the current financial year if unchecked.

Two other major cots lines declined during the year to strengthen profit performance. These are cost of sales, which declined by 1.9% to N52.67 billion against a flat growth in sales revenue and administrative/distribution expenses, which declined by 7.1% to N13.80 billion at the end of the financial year.

The decline in the two key expenditure lines was insufficient to compensate for the high rise in interest expenses and huge drops in the other income lines. Consequently, the company lost profit margin for the second year. Net profit margin continued to decline from 7.5% in 2013 to 7% in 2014 and further to 6.3% in 2015. That resulted in a more rapid decline in after tax profit in 2015 at 10.1% to N4.57 billion than the decline of 4.5% in the preceding year.

The company’s profit performance has followed a pattern of rise and fall over the past six years.  Its after tax profit of N5.32 billion in 2013 was a recovery after two years of drops. The peak profit record remains the N5.58 billion it posted at the end of the 2009/10 financial year.

Earnings per share declined from N1.16 in the preceding year to N1.02 in 2015. It paid an interim dividend of 20 kobo per share last year and has announced a final dividend of 61 kobo per share. The company’s register is scheduled to close between 14^th and 18^th September while payment is slated for 30^th September 2015.

Major developments in the company’s balance sheet include a drop of 48% in cash and bank balances to about N2.33 billion and a drop of 13.84% in trade and other receivables to N17.91 billion. Cash flow position shows net cash decrease, which was induced by a drop of 42% in net cash generated from operating activities. The rapid depletion of cash balances led to the sharp drop in interest income at the end of the year. This has changed the company’s position from net interest income in 2014 to net interest expenses in 2015.