Consumer goods group PZ Cussons, which generates a quarter of its profits in Nigeria, has warned shareholders it will take a one-off hit of £17m related to the foreign exchange shortage in Africa’s largest economy, which is in the throes of its worst slowdown in decades.
The company behind brands such as Imperial Leather soap and Original Source shower gel has also warned that it expects conditions to remain “challenging” in Nigeria with “a range of potential outcomes for the new financial year dependent on the translational and transactional impacts of any movement in the naira exchange rate.”
The sharp fall in oil prices since mid-2014 has caused major cracks in the Nigerian economy and a shortage of foreign exchange is proving a problem for companies operating in the country. PZ Cussons said there continues to be low levels of dollar liquidity in the country and its costs of operating in Nigeria are currently higher due to the additional cost of funding naira from the secondary market.
The group said it is focusing on securing materials for its key products, while it is trying to keep pricing competitive in an economy that is suffering from soaring inflation. Inflation in Nigeria jumped to 13.7 per cent in April – its highest level since June 2010.
An exceptional charge of circa £17m is expected in relation to settling a brought forward dollar liability in Nigeria in the secondary market. The charge will be accounted for as it is realised with circa £7m being taken in the year to 31 May 2016.
Nigeria’s government recently decided to raise prices on imported fuel – a decision that has come under fire from economists and business people who claim the government isside-stepping a decision on the country’s exchange rate. Nigeria’s vice-president acknowledged last month that the country needs to “substantially re-evaluate” its foreign exchange policy and promised a more “flexible” approach “soon”.
Despite its difficulties in Nigeria, PZ Cussons, whose other brands include St Tropez tan and Sanctuary Spa products, said its performance in Europe and Asia is offsetting the challenges in Africa. And its performance across the group in the year ending on May 31 has been in line with expectations.