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Nigeria's crisis hurts soap maker PZ Cussons

Published by Guardian on Thu, 26 Jan 2012


BRITISH soap maker PZ Cussons warned it was likely to report disappointing full year profits, pointing to political upheaval in Nigeria, challenging trading conditions in Australia and high raw materials costs.Shares in the maker of Imperial Leather soap fell as much as 8.4 per cent on Tuesday after it reported an 11.7 per cent drop in first half pretax profit and said that full-year results would be towards the bottom end of current market expectations.It had already issued a profit warning in December as pressure on consumers compounded the pain of high raw materials costs and adverse moves in exchange rates.PZ Cussons said that it was monitoring social and economic tensions in Nigeria closely after gun and bomb attacks by Islamist insurgents in the northern city of Kano last week killed at least 186 people.Nigeria, Africa's most populous country and PZ Cussons' biggest single market, accounts for around 30 to 40 per cent of the group's total revenue.This month's removal of an $8 billion petrol subsidy by the Nigerian government as part of economic reforms also resulted in a costly eight-day national strike that paralysed Africa's second biggest economy and the worsening violence has prompted some to question whether Nigeria is sliding into civil war.'The Nigerian government removal of part of the fuel subsidy or part of it, which caused a week-long strike, is good for the medium-long term health of the economy but has caused disruption in the short term that we have had to factor in this month,' Chief Financial Officer Brandon Leigh told Reuters.'It is part of being in emerging markets and so for the short term it is volatile but medium-long term we are optimistic about Nigeria being a key growth market,' he added.The company, which also makes Carex hand soap and recently bought the Fudge haircare brand, said that profit before tax in the six months to November fell to 39.3 million from 44.5 million a year earlier as higher costs helped undermine a 10.5 per cent rise in revenue to 414 million.Shares in FTSE 250-listed PZ Cussons were down 6.3 per cent at 291.5 per cent having earlier fallen as low as 284.88 pence to levels not seen in almost two years.Panmure analyst Graham Jones, who has a 'hold' rating on the stock, said that although strikes in Nigeria had been called off he had still reduced his full year earnings forecast for the group by 4.6 per cent.PZ Cussons chairman Richard Harvey said that the company anticipated difficult trading in some markets for the rest of the year.'In particular, we are closely monitoring the current economic and social tensions in Nigeria which may further impact the year-end outturn,' Harvey said in a statement. 'Overall, we anticipate that results for the full year will be towards the bottom end of the range of current expectations.
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