Cussons shares fall amid Nigeria currency volatility

Shares of Manchester-based FTSE 250 consumer products company PZ Cussons — the maker of Carex and Imperial Leather — fell about 5% on Tuesday after it published a trading statement and detailed the impact of the currency devaluation in Nigeria on its “near-term future financial performance.”

It a trading statement for the year ended May 31, 2023, Cussons reported group Q4 like for like (LFL) revenue growth of 6.7%, resulting in 6.1% LFL growth for FY23.

FY23 group revenue is expected to be £655 million with LFL revenue growth in each geographic region in Q4.

Cussons predicted adjusted profit before tax for the year of at least £70 million “reflecting a particularly strong Q4 performance in Africa.”

PZ Cussons CEO Jonathan Myers said: “While the Naira devaluation will have a one-off impact to the group’s near-term reported financial performance, we believe the medium to long term prospects for our Nigerian business will be much improved by the economic reforms, currently being introduced by the new government, the likes of which have not been seen for decades.

More widely, PZ Cussons has delivered another year of progress against a challenging economic backdrop.

“We have continued to transform the business and build brands for the long term, while responding to the day-to-day challenges of cost inflation and meeting the needs of the cost-conscious shopper.

“This has resulted in a third consecutive year of like for like revenue growth in FY23. We remain committed to delivering the benefits of executing our strategy in the year ahead.”

On Nigeria, the company said: “The group welcomes the recent policy announcement by the Central Bank of Nigeria to liberalise the foreign exchange regime which, as part of a broader suite of economic reforms under the new government, is highly likely to improve the longer-term prospects for Nigeria and remove some of the cash challenges faced by multi-national companies.

“This has, however, resulted in a devaluation of the Naira since the announcement on 14 June.

The following information is provided to allow for an assessment of the impacts of this devaluation on near-term future financial performance in FY24, recognising that the exchange rates in Nigeria are currently highly volatile.

“There is not expected to be any impact on our audited FY23 results …

The NGN/GBP average rate used to translate the FY23 results of our Nigeria businesses in the group’s income statement was 536 (implied NGN/USD rate of 446) and the NGN/GBP closing rate used for the group’s balance sheet as at 31 May 2023 was 577 (implied NGN/USD rate of 465) … 

” … every 10% devaluation in the Naira from the rate used to translate the FY23 income statement is estimated to result in a £23 million reduction in revenue, £3 million reduction in adjusted operating profit, and 0.5 pence reduction in adjusted earnings per share …

” … every 10% devaluation in the Naira from the closing rate used to translate the balance sheet as at 31 May 2023 is estimated to reduce the group cash balance, as reported in GBP, by approximately £20 million …

“The devaluation of the Naira will also impact the translation of USD-denominated liabilities of our Nigeria business. This adverse impact will be recorded within statutory profit or reserves in the group’s financial statements in FY24 …

“While the devaluation of the Naira will result in higher raw material costs for our Nigeria business, reflecting the higher cost of USD imports, we expect to largely offset this through mitigating actions such as pricing, as successfully demonstrated over the last two years …

“Management believes that the group will be well placed to withstand any macro-economic volatility in Nigeria given our market position and the significant improvement in the profitability of our business there in recent years.

“It has moved from an operating loss in FY20 to an operating margin of more than 10% in FY23, and we have strengthened local capabilities substantially.

“The group is committed to improving the performance of our Nigerian business further given the significant market opportunity and the strength of our brands.”