In its 2024 interim result for the six months ending 2nd December 2023, PZ Cussons reported an FX loss of £88.2 million as a result of the devaluation of the naira since June last year.
Beyond the reported FX loss, the naira devaluation severely impacted the company’s financial performance in terms of its operating profit, revenue, dividend payment, etc.
The impact of the naira devaluation on the holding company’s performance stems from the fact that PZ’s Nigerian business represents 35% of the company’s revenue and 22% of its net assets for FY 2023.
Operating loss
For the period under review, PZ Cussons reported an operating loss of £89.7 million of which £88.2 million represented the FX loss reported earlier. This represents a significant decline when compared to the £39.2 million profit recorded in the previous period.
The Chief Executive of PZ Cussons, Jonathan Myers speaking on the company’s financial performance stated,
- “The most significant challenge we have faced by far has been the devaluation of the Nigerian Naira, which is today around 70% weaker than a year ago, representing the biggest drop in the currency’s history.”
- “As we set out in September 2023, macroeconomic developments in Nigeria would be the key determinant of the FY24 results. Whilst we continue to make good progress in managing this volatility, the further devaluation in recent weeks will inevitably impact our FY24 results.”
Decline in revenue and dividend payment
The company also reported a decline in revenue by £59.8 million of which £52.9 million was a result of the naira devaluation. This represents a drop of 17.8% in the period under review. However, LFL revenue grew by a mere 2.2% during the period.
As a result of the drop in revenue, the company has adjusted its profit for FY24 in the region of £55 to £60 million.
As a consequence of Nigeria’s macroeconomic woes on the company’s financial performance, the Board agreed to slash dividend payment from 2.67p in H1 2024 to 1.50p representing a decline of 43.8%.
It noted that had the NGN/USD exchange rate of 31st January been used to translate the FY 2023 EPS payment, the EPS would have been lower by over 30%.
It stated,
- “The Board has reviewed the dividend carefully given the material devaluation of the Naira, particularly as it is difficult to foresee a significant rebound in the value of the currency in current circumstances. Had the exchange rate as of 31 January 2024 been the rate used to translate the FY23 results, FY23 EPS would have been over 30% lower.”
Cash repatriation
On the flip side, the company stated that as of the end of November 2023, it had successfully repatriated £13 million from Nigeria to its Holding company. This follows the confirmation by the company about three months ago of cash repatriation to its holding company and projected to return £30 to £50 million if the macroeconomic conditions, then remain unchanged.
What you should know
- Since the unification of the foreign exchange market in June companies across different industries have reported FX losses on their balance sheet.
- For January, the naira has depreciated by 37.6% on the official NAFEM window. This propelled the CBN to introduce a slew of initiatives aimed at providing stability in the market.
- However, the Governor of the CBN, Yemi Cardoso had earlier stated that the naira is undervalued, and the bank would work towards real price discovery in the year 2024.
- On fulfilling the CBN’s obligation to pay the backlog of valid forex owed to companies, the leadership of the apex bank has walked its talk and so far settled around $2.3 billion with around $2.2 billion of valid forex claims unsettled.
