PZ Cussons Nigeria Plc. H1'17/18 results - Lower FX losses uplift earnings

PZ Cussons Nigeria Plc. H1'17/18 results - Lower FX losses uplift earnings
(Source: CardinalStone Research, Date: 14-Dec-2017)

From: CardinalStone Research [mailto:research@cardinalstone.com]
Sent: Thursday, December 14, 2017 9:07 AM
To: uwaagbonile@infowarelimited.com
Subject: CardinalStone Earnings News - PZ Cussons Nigeria Plc. H1'17/18 results - Lower FX losses uplift earnings

CardinalStone Research: PZ Cussons Nigeria Plc. H1'17/18 results - Lower FX losses uplift earnings

14 December 2017

Good evening,

PZ Cussons Nigeria Plc. (PZ) H1'17/18 result - Turnover rose by 23.5% YoY to N41.1 billion, ahead of our estimate of N36.5 billion (+12.5% deviation). The company also reported a profit after tax of N589 million, behind our estimate of N1.4 billion (+56.9% deviation).

Other highlights:

Â· H1'17/18 revenue grew by 23.5% YoY to N41.1 billion supported by price increases especially in the Home and Personal care segments which are the major contributors to revenue. On a quarterly basis, revenue grew by 17.6% QoQ.

Â· We notice increasing cost pressure on gross margin, as Q2'17/18 cost of sales to revenue ratio climbed 589bps to 71.53% YoY and 328bps to 71.5% QoQ. Consequently, gross margin moderated to 28.5% in Q2'17/18 from 34.4% in Q2'16/17.

Â· Finance charges declined by 50% QoQ to N1.2 billion partly due to lower reported FX losses (Q2'17/18: N779 million; Q1'17/18: N1.8 billion) on its foreign currency payables.

Â· Cost of sales pressure filtered into operating margin which contracted during the period (Q2'17/18: 8.9%; Q2'16/17: 12.9%). This was despite marginal improvement in operating expense management observed in declining operating expense to sales ratio (-190bps YoY and -210 bps QoQ ).

Â· Notwithstanding, the company returned to profitability reporting a PAT of N712 million in Q2'17/18 compared to a loss after tax of N123 million in Q1'17/18, thanks to lower FX losses.

N'billion	H1'17/18	H1'16/17	YoY	CSP Est.	% Variance
Revenue	41.1	33.3	23.5%	36.5	12.5%
Cost of Goods Sold	(28.8)	(21.8)	31.9%	(25.0)	15.1%
Gross profit	12.3	11.5	7.5%	11.7	5.6%
SGA Expenses	(8.4)	(7.1)	18.6%	(8.5)	-0.6%
Other Income	0.1	0.1	-42.3%	0.0	34.0%
Finance cost (Net)*	(3.6)	(4.9)	-25.8%	(2.2)	63.8%
PBT	0.9	(0.4)	N/M	2.3	-62.9%
Taxation	(0.3)	0.1	N/M	(1.1)	-74.0%
PAT	0.6	(0.3)	N/M	1.4	-56.9%
	H1'17/18	H1'16/17
Gross profit margin	30.0%	34.4%
Operating Profit margin	9.4%	13.1%
PAT margin	1.4%	N/M

*Net finance cost includes exchange losses

The quarterly breakdown of PZ's result is shown below;

N'billion	Q2'17/18	Q1'17/18	QoQ
Revenue	22.2	18.9	17.6%
Cost of Goods Sold	(15.9)	(12.9)	23.2%
Gross profit	6.3	6.0	5.4%
SGA Expenses	(4.3)	(4.1)	6.0%
Other Income	0.1	0.0	N/M
Finance cost (Net)	(1.5)	(2.1)	-27.7%
PBT	1.1	(0.2)	N/M
Taxation	(0.4)	0.1	N/M
PAT	0.7	(0.1)	N/M
	Q2'17/18	Q1'17/18
Gross profit margin	28.5%	31.8%
Operating Profit margin	8.9%	10.1%
PAT margin	3.1%	N/M

Kindly click here for a copy of PZ Cussons Nigeria Plc H1'17/18 results.

Our target price is under review

Regards,

Jerry Nnebue

Research Analyst, Consumer Goods
CardinalStone Partners Ltd

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