PZ Cussons Nigeria Plc Q1 2019: Weak Margin, Higher Opex/Sales Pressures Performance

October 4, 2018/InvestmentOne Report

•     Contraction in topline: down 8.1% q/q; 14.3% y/y.

•     Lower gross profit margin: down 745bps q/q; 380bps  y/y.

•     Higher opex/sales ratio: up 457bps q/q; 377bps y/y.

•     A loss before tax of N205million in Q1 2019 against a profit before tax of N347million in Q4 2018 and a loss before tax of N181million in Q1 2018. 

PZ Cussons Nigeria Plc (PZ) released its Q1 2019 scorecard last week Friday. Similar to Q4 2018, the result came in disappointing as major line items reflected the firm’s continued challenges in the operating environment.  

Consequently, PZ recorded a loss before tax of N204million, largely driven by 14.3% y/y contraction in topline, 24.4% y/y decline in gross profit and 377bps y/y expansion in opex/sales ratio, which outweighed the 62.7% y/y reduction in foreign exchange loss and a net finance income of N50million in Q1 2019 against a net finance cost of N273million in Q1 2018. 

On a q/q basis, the loss before tax in Q1 2019, against a profit of N347million in Q4 2018, was due to similar factors that drove performance on a y/y basis. 

Negative Gross Profit Margin Performance  

Both on a q/q and y/y basis, gross profit margin contracted by 745bps and 380bps respectively to 28.5% in Q1 2019. The decline in gross margin may be due to input cost pressures coupled with the inability to take price increases as consumer demand remains fragile and competition intensifies.  

We believe the contraction in gross profit margin as well as lower sales volume in Q1 2019 largely accounts for the 24.4% y/y drop in gross profit in the quarter. 

Opex/Sales Ratio On The Rise 

Furthermore, opex/sales ratio jumped by 457bps q/q and 377bps y/y to 26.1% in Q1 2019. On a y/y basis, while administrative and distribution expenses remained fairly stable, the spike in opex/sales ratio was driven by the weak topline performance registered in the quarter. Compared to Q4 2018, the rise in opex/sales ratio was largely driven by the 80.8% rise in administrative expenses to N1.90billion.   

Consequently, operating margin shed 1202bps q/q and 757bps y/y to 2%, the lowest in the last 12 quarters. 

Moderated Foreign Exchange Loss 

Despite the negatives that headlined PZ Q1 2019 results, foreign exchange loss moderated both q/q and y/y to N688million. We suspect the decline in FX loss may have been supported by the improvement in FX liquidity, which has seen support from the introduction of the IEFX window in 2017.  

Cash Flow From Operation Remains a Source of Concern 

Similar to Q1 2018, PZ’s cash flow from operation during the quarter printed in the negative. Although operating cash flow before working capital adjustment came in positive, higher by 377.09% y/y to close at N436.54million, the negative cash balance from operations after working capital adjustment was driven by the N2.64billion and N537.80million increase in inventories and trade receivables respectively as well as the N2.96billion reduction in trade and other payables during the quarter. The increase in inventory may be a reflection of lower sales volume recorded in the quarter. 

Compared to Q4 2018, asides the loss before tax registered in the period, which contributed to the 92% reduction in operating cash flow before working capital adjustment, the negative cash flow from operation was driven by the same factors highlighted above. 

Going forward, we expect election spending and potential disbursement of funds for capex before the end of the year to be supportive of consumer spending. This may bode well for the company’s topline performance in the medium to long term. Given the competitiveness in the consumer goods space, we do not expect to see significant price increases. Although, the parent company highlighted the need to review product cost with a focus on areas such as packaging reduction, we believe there may still be some pressure on gross profit margin. However, we expect a restructuring of the operating model aimed at reducing overheads and stability in FX to bode well for PBT performance. 

Our pricing models are currently under review. 

PZ Cussons Nigeria Plc Q1 2019. figures. YE: MAY 31 (N’ millions)


Q1 2019







Cost of Sales




Gross Profit




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Net Finance cost/income




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PBT margin








Tax rate








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Source: Company Financials, Investment One Research





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