PZ Cussons Plc have been hard hit by a foreign exchange loss, fuelled by a weakening of the naira by the Central Bank of Nigeria (CBN), as the company continues to gasp for breath under a challenging operating environment.
According to note 4 of PZ Cussons’ financial statement for the year ended May 31, 2016, posted on the website of the Nigerian Stock Exchange, a foreign exchange loss of N2.9 billion resulted in a 52 percent drop in profit before tax to N3.15 billion from N6.5 billion the previous year.
The naira weakened by 38 percent to N282 when the CBN adopted a flexible exchange rate regime after 15 months of restrictions that saw economic activities slump as companies were unable to import raw materials due to dollar shortages.
As a result of rising inflation that made it difficult for consumers to loosen the string of their pulse, scarcity of foreign currency and higher prices, PZ Cussons’ sales fell by 4.90 percent to N69.50 billion as at year ended May 2016.
The systematic risks dampened margins, as receding sales couldn’t absorb savings in material costs.
Net margins, a measure of profitability and efficiency fell to 3.05 percent in 2016 as against 6.25 percent last year. Operating profit margins dropped to 3.05 percent in 2016 from 9.90 percent in 2015.
“Management of PZ’s parent company in the UK had acknowledged during its FY 2016 analyst presentation that tight liquidity and increased cost in Nigeria due to the scarcity of foreign exchange were headwinds to growth. Although PZ tried to manage price points and products sizes as well as reduce operating costs, the impact of the tough trading environment in Nigeria still came to bear,” said analyst at FBN Quest.
