PZ Cussons Nigeria financially distressed as liabilities surpass assets

PZ Cussons Nigeria is facing possibly its biggest existential problem since setting foot in the country 125 years ago after Nigeria’s harrowing foreign exchange crisis plunged the country deeper into troubled waters.

The local unit of British healthcare products and consumer goods giant PZ Cussons Plc slipped into a negative net asset position after a free fall in the value of the naira eroded earnings and wiped out its shareholders’ fund in its entirety.

Negative net asset is a financial condition whereby a company’s total liabilities exceed its total assets.

PZ Cussons Nigeria is the maker of formidable brands, including King’s Vegetable Oil, Mamador, Morning Fresh, Premier Cool, Joy Soap and Robb.

Nigeria is the biggest and most diverse single market of PZ Cussons, which has footprints in North America, Asia-Pacific, Europe and other parts of Africa.

“The ongoing depreciation of the Naira and decrease in volumes of approximately 6% overall resulted in an operating loss of ₦73.8 billion for the first 6 months of the 2023/2024 financial year,” the company said in a Tuesday regulatory filing.

“In addition, the Company had a foreign exchange loss of ₦87.0 billion on our foreign currency-denominated trade obligations, negatively impacting our operating result.”

The development is the latest woe to multinational operations in corporate Nigeria where a protracted currency crisis has caused a raft of foreign companies to flee and is pushing several others to the brink.

Rivals P&G and GSK exited the country last year after a crushing blow from foreign exchange losses, while Unilever was forced to shrink its product mix as a hard measure to keep its operations going.

Unilever is resorting to local sourcing of close substitutes of some imported raw materials to weather the currency volatility storm, while Nestle is ramping up its reliance on local raw materials to beat foreign exchange pressures but that didn’t stop it from reporting a massive loss in the nine months to September.

In its recently issued financial report for 2023, the country’s oldest and biggest beer-maker Nigerian Breweries, backed by Heineken, incurred a record loss of N145 billion for the year after a net loss on foreign exchange transactions of N153.3 billion.

The local currency has dropped by roughly 70 per cent against the dollar since June 2023 when a series of far-reaching foreign exchange reforms were introduced to enable the currency market to trade more freely.

Naira shed 50 per cent of its value last year, making it one of the worst-performing currencies in the world and making 2023 a problematic period for PZ Cussons Nigeria, whose liabilities are dominated by foreign currency-denominated borrowings from its parent company and related parties.

Loss for the six months to November 2023 soared more than eleven times to -N74.1 billion, according to its unaudited earnings report for the period.

While total assets stood at N154.8 billion, total liabilities came to N178 billion. Shareholders fund is now in the red, estimated at -N23.2 billion.

“Our payables denominated in foreign currencies have increased significantly in recent years, primarily as a result of our inability to source foreign currency to repay our suppliers and other providers of credit,” the company said.

The company has summoned shareholders to an extraordinary general meeting to be held on 13 March to discuss the issue.

PZ Cussons is in the middle of going private after its core shareholder, PZ Cussons (Holdings) Limited, offered to buy out minority shareholders at the sum of N24.4 billion (N23 per share).

“If they have a lot of borrowings and payables in foreign currencies, it is going to be an issue,” Folorunso Adeleye, a chartered accountant and team lead internal audit and compliance at Lagos-based commercial and variable data printing company Superflux, told PREMIUM TIMES.

“If the problem is as a result of those loans, it means there is not much problem because the moment the exchange rate improves, the value of the loan will come down (in naira terms). If their revenue is poor and they have a lot of receivables, there will be problems.”

PZ Cussons Nigeria is facing possibly its biggest existential problem since setting foot in the country 125 years ago after Nigeria’s harrowing foreign exchange crisis plunged the country deeper into troubled waters.

The local unit of British healthcare products and consumer goods giant PZ Cussons Plc slipped into a negative net asset position after a free fall in the value of the naira eroded earnings and wiped out its shareholders’ fund in its entirety.

Negative net asset is a financial condition whereby a company’s total liabilities exceed its total assets.

PZ Cussons Nigeria is the maker of formidable brands, including King’s Vegetable Oil, Mamador, Morning Fresh, Premier Cool, Joy Soap and Robb.

Nigeria is the biggest and most diverse single market of PZ Cussons, which has footprints in North America, Asia-Pacific, Europe and other parts of Africa.

“The ongoing depreciation of the Naira and decrease in volumes of approximately 6% overall resulted in an operating loss of ₦73.8 billion for the first 6 months of the 2023/2024 financial year,” the company said in a Tuesday regulatory filing.

“In addition, the Company had a foreign exchange loss of ₦87.0 billion on our foreign currency-denominated trade obligations, negatively impacting our operating result.”

The development is the latest woe to multinational operations in corporate Nigeria where a protracted currency crisis has caused a raft of foreign companies to flee and is pushing several others to the brink.

Rivals P&G and GSK exited the country last year after a crushing blow from foreign exchange losses, while Unilever was forced to shrink its product mix as a hard measure to keep its operations going.

Unilever is resorting to local sourcing of close substitutes of some imported raw materials to weather the currency volatility storm, while Nestle is ramping up its reliance on local raw materials to beat foreign exchange pressures but that didn’t stop it from reporting a massive loss in the nine months to September.

In its recently issued financial report for 2023, the country’s oldest and biggest beer-maker Nigerian Breweries, backed by Heineken, incurred a record loss of N145 billion for the year after a net loss on foreign exchange transactions of N153.3 billion.

The local currency has dropped by roughly 70 per cent against the dollar since June 2023 when a series of far-reaching foreign exchange reforms were introduced to enable the currency market to trade more freely.

Naira shed 50 per cent of its value last year, making it one of the worst-performing currencies in the world and making 2023 a problematic period for PZ Cussons Nigeria, whose liabilities are dominated by foreign currency-denominated borrowings from its parent company and related parties.

Loss for the six months to November 2023 soared more than eleven times to -N74.1 billion, according to its unaudited earnings report for the period.

While total assets stood at N154.8 billion, total liabilities came to N178 billion. Shareholders fund is now in the red, estimated at -N23.2 billion.

“Our payables denominated in foreign currencies have increased significantly in recent years, primarily as a result of our inability to source foreign currency to repay our suppliers and other providers of credit,” the company said.

The company has summoned shareholders to an extraordinary general meeting to be held on 13 March to discuss the issue.

PZ Cussons is in the middle of going private after its core shareholder, PZ Cussons (Holdings) Limited, offered to buy out minority shareholders at the sum of N24.4 billion (N23 per share).

“If they have a lot of borrowings and payables in foreign currencies, it is going to be an issue,” Folorunso Adeleye, a chartered accountant and team lead internal audit and compliance at Lagos-based commercial and variable data printing company Superflux, told PREMIUM TIMES.

“If the problem is as a result of those loans, it means there is not much problem because the moment the exchange rate improves, the value of the loan will come down (in naira terms). If their revenue is poor and they have a lot of receivables, there will be problems.”