PZ Cussons Nigeria Plc has reported a surge in full-year profit boosted by the sale of property as the soap maker battled scarcity of foreign exchange and soaring inflation.
The audited financial statement for the year ended May 31, 2022 showed the consumer goods giant’s net income increased by 277.96 percent to N6.69 billion from N1.77 billion the previous year.
Drilling down into the books shows the bottom line (pre/post tax profit) was bolstered by profit from the sales of a non-core property at Ikoyi, Lagos State to a tune of N8.83 billion.
It however raises concerns that this may be a one-time positive for the consumer goods firm as rising production costs erode margins in a tough and unpredictable macroeconomic environment.
Some analysts who spoke with MoneyCentral say there is a limit to which firms can pass on rising input costs to the final consumers in the form of higher prices.
Of course, companies have hiked the price of key product response to red-hot inflation that has been exacerbated by the Russian and Ukraine war that balloons the price of grains and other commodities as both countries, especially Russia, are the largest producers of these commodities.
Because the diesel oil had been deregulated, its price has skyrocketed in accord with the rally with crude oil price since the start of the war in East-Europe, which compounds the woes of manufacturers who rely on the product to propel production of goods and services.
The elevated energy costs, and supply chain challenges have taken a toll on manufacturers’ operations and there is very little room to pass the increased cost to consumers before demand, especially for discretionary goods, begins to wane, according to analysts at CSL Stock Brokers Limited in a note to clients.
“In extreme cases, businesses resort to package downsizing just like we are seeing in recent times. In addition, the inability to source forex at the official window has either made them resort to the parallel market at a significant cost or unable to buy machines for their production,” said analysts at CSL Stockbrokers.
Nigeria’s inflation rate has surged further to 20.77% in the month of September 2022, from 19.64% recorded in the previous month. This represents the highest rate since September 2005, according to recent data from the National Bureau of Statistics (NBS).
As a result of the aforementioned myriad of challenges, PZ Cussons is not making profit from core operations as it posted an operating loss of N231.53 million as at the end of May 2022 from a profit of N946.56 million the previous year.
The company’s cost of sales spiked by 27.11 percent, which is higher than the 20.50 percent inflation rate. It spent N0.7530 on input cost to produce every N1 unit of the product.
However, the company benefited from the reopening of the economy and hike in the price of key products as revenue increased by 20.15 percent to N99.50 billion in the period under review.