PZ Cussons, the company behind Carex soap and Imperial Leather, has cautioned that the volatility of the Nigerian currency may negatively impact its revenue and profits in a one-time blow to its financial position.
The Manchester-based personal care giant, with a significant presence in Nigeria, has informed its investors about the potential consequences of the devaluation of the naira on its immediate financial performance.
The CBN recently adjusted its foreign exchange policy, eliminating intricate trading restrictions on the official market and allowing the naira to trade freely.
This resulted in a historic single-day decline of nearly 25% in the currency’s value. While the devaluation of the naira will have a temporary impact on the company’s reported financial performance in the short term, PZ Cussons believes that the economic reforms being implemented by the new Nigerian government will greatly enhance the future prospects of its Nigerian business in the medium to long term.
PZ Cussons has estimated that a 10% devaluation in the naira, based on the rate used in its 2023 full-year income statement, would lead to a £23 million decrease in revenue and a £3 million decline in adjusted operating profit.
Additionally, it could result in a 0.5p reduction in adjusted earnings per share and a decrease of approximately £20 million in its cash balance.
The company acknowledges that a weaker naira is likely to result in higher material costs for its Nigerian operations due to more expensive imports from the United States.
However, PZ Cussons believes that any cost increases can be mitigated through price adjustments. Despite the immediate challenges, the company views the currency liberation as a positive move in the long run.
The recent currency volatility in Nigeria follows a period of instability earlier in the year, triggered by elections and the problematic introduction of new banknotes after the expiration of the old ones.
Jonathan Myers, the CEO of PZ Cussons, expressed confidence in the company’s Nigerian business, stating that while the short-term impact of the naira devaluation will be felt, the ongoing economic reforms introduced by the new government are expected to significantly improve the medium to long-term prospects of the business.
PZ Cussons reported a 6% increase in revenues for the year ending in May, compared to the previous year, buoyed by strong performance in Africa despite the currency challenges.
The company anticipates achieving an adjusted pre-tax profit of at least £70 million for the year, underscoring its commitment to long-term brand-building and meeting the demands of cost-conscious consumers.
The 2023 financial year marks the third consecutive year of like-for-like revenue growth for PZ Cussons.
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