PZ Cussons’ Africa annual revenues declined by 9.8% to $306.7 million in 2018 from $340.1 in 2017, while Operating Profit fell 77.7%. Blaming tough economic conditions, the company is seeking a major overhaul of its Nigerian operations and possibly a brand sell off.
PZ Cussons is blaming economic conditions and logistics delays at the port in Lagos. It has been especially hard hit in its Nutricima milk business, where competition and discounting have hit both volumes and margins. It has written off $27.6m against its Nutricima milk business and Australian yoghurt and granola brand five:am. In 2014, PZ Cussons bought-out Glanbia’s 50% stake in Nutricima for £21m in cash, having formed the venture in 2003.
Its strategic overhaul will see PZ Cussons focus on consumer pack innovation, which is unlikely to change Nutricima’s fortunes, and growing its personal care and beauty brands.
PZ Cussons’ problems in Nigeria run deeper than discounting, logistics and competition in dairy: all major FMCG manufacturers in Nigeria faced financial problems as the weakness and volatility of the Naira meant that the cost of imported materials shot up. Since then, many have reported strong top line growth backed by aggressive cost management and focus on operational efficiency to bring profits back on track. Meanwhile, PZ Cussons’ response for its dairy business is pack innovation. It’s not enough to fix more systemic issues about its cost base.
Worse, the Governor of the Central Bank of Nigeria has said the bank will add milk and other dairy products to the list of items restricted from accessing the official forex market, in a bid to improve local processing capacity.
Realistically, most analysts expect PZ Cussons to sell its dairy business, which is non-core and loss-making. There should be several willing takers: major dairy companies including Arla, Nestlé and Fonterra are all seeking to build or grow market share in what is a young, high population growth market well suited to increase dairy consumption.