PZ Cussons Ghana Limited (PZC.gh) 2019 Annual Report

We have extracted the Chairman’s Statement from the 2019 annual report for PZ Cussons Ghana Limited (PZC.gh), listed on the Ghana Stock Exchange :

Welcome to the 61st Annual General Meeting of PZ Cussons Ghana Ltd

The global growth forecast for 2019 is at 3.0 percent, the lowest level since 2008. Growth is projected to pick up to 3.4 percent in 2020, reflecting primarily a projected improvement in economic performance in a number of emerging markets in Latin America, the Middle East, and emerging and developing Europe that are under macroeconomic pressure. Yet, with uncertainties about prospects for several of these countries, a projected slowdown in China and the United States, and prominent downside risks, a much more moderate pace of global activity could well materialize. Making growth more inclusive, which is essential for securing better economic prospects for all.

This year’s African economic outlook from the African Development Bank shows that the continent’s general economic performance continues to improve. Gross Domestic Product reached an estimated 3.5 percent in 2018, about the same as in 2017 and up from 2.1 percent in 2016. Africa’s GDP growth is projected to accelerate to 4.0 percent in 2019 and 4.1 percent in 2020. But even that growth is not fast enough to address persistent fiscal and current account deficits and unsustainable debts. Indeed, countries have to move to a higher growth path and increase the efficiency of growth in generating decent jobs. The 2019 Outlook shows that macroeconomic and employment outcomes are better when industry leads growth.

The economic recovery in sub-Saharan Africa continues. Regional growth is set to pick up from 3 percent in 2018 to 3.5 percent in 2019, before stabilizing at close to 4 percent over the medium term. These region wide numbers mask considerable differences in the growth performance and prospects across countries. About half of the region’s countries — mostly non-resource-intensive countries — are expected to grow at 5 percent or more, which would see per capital incomes rise faster than the rest of the world on average over the medium term. For all other countries, mostly resource-intensive countries, improvements in living standards will be slower. Notwithstanding these different economic prospects and policy priorities, countries share the challenge of strengthening resilience and creating higher, more inclusive and durable growth. Addressing these challenges requires building fiscal space and enhancing resilience to shocks by stepping up actions to mobilize revenues, alongside policies to boost productivity and private investment.

Ghana’s economy continued to expand in 2019, and the first quarter GDP growth was estimated at 6.7%, compared with 5.4% in the same period of last year. Non-oil growth was also strong at 6.0%. The relatively high quarterly growth was driven by a strong recovery in the services sector which grew by 7.2% compared with 1.2% in 2018

The government continued with its fiscal consolidation efforts in 2019 even though there are still challenges in meeting the revenue targets. Fiscal performance for the first half of 2019 showed an overall budget deficit (on cash basis) of 3.3% of GDP higher than the target of 2.9% of GDP. This is because the revenue shortfall of 1.6% of GDP was higher than expenditure cuts of 1% of GDP. Private sector credit grew stronger, supported largely by the well-capitalized banking sector. Inflation continued to be in single digits in the first six months of 2019; gradually rising from 9% in January to 9.5% in April 2019 but reduced to 9.1% in June 2019 mainly driven by low food inflation. The Ghana cedi came under considerable pressure in the first quarter of 2019, due to high demand, as importers sought to restock their supplies but, in the second quarter, the domestic currency market became relatively calmer.

The Ghana cedi cumulatively depreciated by 8.2% in the year to July, 2019. Economic growth is projected to increase to 7.6% in 2019. Non-oil growth is expected to accelerate to 6% as the government’s new policies in the agriculture sector and the promotion of agro industry begin to take effect. Inflation is expected to remain within the Central Bank’s target range of 6-10% over the medium term. The pace of fiscal consolidation is expected to slow in 2019 and the overall fiscal deficit is projected at 4.5% of GDP in 2019 and, in the medium term, it will remain within fiscal rule ceiling of 5% of GDP.

In this challenging environment, the FMCG industry continues to experience high costs of operations in infrastructure and financing, to mention but a few. One of the serious challenges facing this sector is the supply chain and distribution difficulties both locally and cross-border e.g. Seme border has been closed and there’s no clear view as to when it will be re-opened for trade activities progress. Another factor is depreciation of the cedi against the major currencies, which remains a major risk to businesses, as disposable incomes are relatively flat. Of important mention is also the continuous cleaning up of the financial sector with the revocation of licences of several Savings and Loan companies, Finance Houses,Micro-finance companies and Micro-credit lenders. The ripple effect of job losses and decrease in lending has affected several businesses in the year.

The Company continues to remain solid in the mist of these challenging times by putting firm measures in place to sustain our strong position in the market. Our main focus brands continue to be Camel/Carex, Nunu, Cussons Baby and Robb, which have maintained their leading market positions due to our company’s continued investment in people, distribution and brand equity building activities.

In the year PZ exited from the Haier Thermocool business to align with the business strategy of Focus, Scale and Accelerate. The exit also affected the business performance for the year. Revenue declined by 4.5% versus last year; i.e. GH¢106.5m from GH¢111.6m in 2018. Operating profit improved at GH¢28.6m as against GH¢3.3m last year. Profit before tax stood at GH¢59.73m (which includes fair value gains from our Investment Properties of GH¢38.0m) versus 2018 of GH¢6.3m. Profit after tax was GH¢42.5m versus 2018 of GH¢6.5m.

The outcome of our operations this year is reflective of our commitment to a sustainable growth agenda with total asset value of GH¢133.5m. The business remains strong and solidly positioned for sustainable performance and return on investment in the years ahead. We are committed to increasing shareholders’ value by optimizing the marketing and distribution of our products and providing our consumers with quality products that suit their daily needs and aspirations, whilst we continue to fulfill our corporate social responsibilities.

At this point, I would like to thank my colleagues on the Board and our parent company PZ Cussons PLC UK for their continued support and investment into our company. Finally, and very importantly, I would like to extend my sincere thanks and appreciation to the Management and Staff for their hard work, commitment and continuous dedication and focus on improvement in very demanding and challenging market conditions. We will continue to dedicate ourselves to enhancing our bottom line figures in the coming years with the anticipated growth in the local economy.

Paul Kwabena Pepera
Chairman