News
Insecurity
Forces Manufacturers out of Nigeria
The current insecurity in the country, arising from the daily
attacks on life and property in Nigeria by an Islamic Boko Haram
sect, is likely to create more economic woes for the Nigerian
citizens, if not checked.
Already, 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
percent on Tuesday after it reported an 11.7 percent drop in
first half pretax profit and said full-year results would be
towards the bottom end of current market expectations.
Note that the firm 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 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. There are strong indications that more foreign
manufacturing firms would close shops in the troubled Northern
Nigeria, a source hinted in the week under review.
Some of the companies that are pulling out of the country,
according to a reliable source are heading to their already
saturated market in Ghana and other peaceful and stable West
African countries.
Nigeria, Africa's most populous country and PZ Cussons' biggest
single market, accounts for around 30 to 40 percent 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 profit before tax in the
six months to November fell to 39.3 million pounds from 44.5
million a year earlier as higher costs helped undermine a 10.5
percent rise in revenue to 414 million pounds.
TOUGH IN AUSTRALIA, THAILAND
Shares in FTSE 250-listed PZ Cussons were down 6.3 percent at
291.5 percent 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 percent.
PZ Cussons chairman Richard Harvey said 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."
Nicola Mallard, an analyst at Investec Bank, said the company
had been counting on growth in Nigeria to help counter difficult
trading in more mature markets.
Trading conditions in Australia, Thailand and the Middle East
remained challenging, the company said, leading to lower profits
at its Asia division.
The company said its balance sheet remained strong, however, and
that it had the appetite to pursue other deals following its
acquisition of Fudge for 25.5 million pounds.
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