PZ Cussons Nigeria Plc (PZCN), a subsidiary of PZ Cussons Holdings Limited (PZCH) has given an explanatory note to its shareholders and investing public on the proposed conversion of debt to equity.
PZ Cussons (Holdings) Limited (PZCH) has 73.27% stake in PZ Cussons Nigeria Plc.
In an explanatory note to shareholders on the proposed conversion of debt to equity PZ Cussons Nigeria Plc (PZCN) sated thus:
In June 2022, PZCH advanced an intercompany loan of USD40.26 million to PZCN to help settle outstanding foreign currency payables related to raw material imports, operational and other input related costs that had not been possible to settle due to challenges with foreign currency availability.
The liberalisation of the foreign exchange market in June 2023 and attendant devaluation of the currency throughout 2023 and 2024 has had a material adverse impact on the financial results of the Company as the Naira value of its foreign currency denominated loans has increased significantly. This resulted in an unrealised exchange loss of ₦157.9 billion, a loss after tax of ₦76.0 billion and a negative shareholders’ equity position of ₦27.5 billion for the financial year ended 31 May 2024.
While PZCN has continued to record strong operational growth, reporting 34% and 42% year-on year revenue growth for the full and half financial year periods ended 31 May 2024 and 30 November 2024 respectively, further depreciation of the value of the Naira and its adverse revaluation impact on the foreign currency loans of the Company has continued to erode PZCN’s operational profit resulting in losses after tax and a worsened negative net equity position of ₦34.5 billion as of the Company’s latest financial results dated 30 November 2024.
In light of the above, the Board of Directors of PZCN (the “Board”) has carefully considered various options to address the Company’s negative equity position which is considered essential to reposition the Company to the path of profitable sustainable growth. This includes settling the outstanding shareholder loan obligation and reducing the overall Company’s exposure to foreign currency fluctuation risk. The Board and PZCH, after extensive discussions, agree that the conversion of a portion of the outstanding loan amounting to USD34.26 million into equity (the “Conversion”) is the most efficient value of debt to be converted into equity and the optimal option for the Company to strengthen its balance sheet and significantly reduce exposure to further foreign exchange losses. The Conversion will significantly strengthen PZCN’s balance sheet and support its future growth without excessive dilution to the interests of minority shareholders. Following the Conversion, the remaining shareholder loan balance of USD6 million will remain as a loan payable to PZCH. The terms of the balance of the shareholder loan will not be altered as a result of the conversion. This loan is being provided on highly favourable terms, especially when compared with the current lending rates in Nigeria, which allows PZCN to maintain manageable financing costs while supporting its operational cash flow.
Following the Board’s engagement with PZCH, the terms of the Conversion have been approved by the Board and are now being recommended for approval by shareholders at an Extra-Ordinary General Meeting to be held at Transcorp Hilton, FCT, Abuja on Thursday, 13 March 2025.
RATIONALE FOR THE CONVERSION AND EXPECTED BENEFITS
The Board is of the opinion that the Conversion would create value for the shareholders and other stakeholders of the Company for the following reasons:
- Strengthening the balance sheet allows future operating cash flows to be allocated more strategically towards value-creating opportunities that align with the Company’s growth objectives
- It will materially reduce the Company’s exposure to foreign exchange risk and its potential impact on Company earnings, thus reducing future foreign exchange losses and further deterioration of the Company’s net asset position.
- It will improve the Company’s financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the Company’s financial standing and creditworthiness
- The Conversion will restore the Company to a positive net asset position. A stronger balance sheet and improved financial ratios could enhance investor confidence in the Company, potentially leading to a more favorable market valuation in terms of share price and increased liquidity for shareholders.
TERMS OF THE CONVERSION
This will entail the conversion of a portion of the outstanding shareholder loan amounting to USD34,264,544 (thirty four million, two hundred and sixty four thousand, five hundred and forty four US Dollars) or ₦51,795,312,646.721 (fifty one billion, seven hundred and ninety five million, three hundred and twelve thousand, six hundred and forty six Naira, seventy two Kobo) to equity at an agreed price of ₦23.60 per share, which was the share price of the Company as at close of trading on 12 February 2025, the date before the Board meeting to duly consider and resolve to recommend the Conversion for approval by the shareholders.
In consideration for the Conversion, PZCN will issue additional 2,194,716,637 (two billion, one hundred and ninety four million, seven hundred and sixteen thousand, six hundred and thirty seven) ordinary shares of 50 kobo each to PZCH. The Company’s share capital will be increased by ₦1,097,358,318.50 through the creation of 2,194,716,637 ordinary shares of 50 kobo each to accommodate the issuance of the new shares to be allotted to PZCH. The new shares will rank pari passu with all the existing shares in the Company’s share capital.
Subject to the approval of shareholders, the Board will seek the approval of the Securities and Exchange Commission (SEC) for the Conversion and registration of the new shares to be issued to PZCH, in line with Rule 279 (5) of SEC Rules. Following receipt of SEC approval, the additional shares will be allotted to PZCH and listed on the floor of the Nigerian Exchange Limited.
EFFECT OF THE CONVERSION
PZ Cussons Holdings Limited (PZCH) will have now have 82.79% equity stake in PZ Cussons Nigeria Plc after the conversion as against the 73.27% stake before the conversion.