PZ Cussons Reports 2011 Six-Month Financial Results

PZ Cussons Plc announced its interim results for the six months ended Nov. 30, 2011. The company reported revenue of £414 million for the half-year ending Nov. 30, 2011, a 10.5% increase over £374.8 million reported in the same time period in 2010.

Commenting on the report, chairman Richard Harvey said, “The group has delivered good revenue growth of 10% in the first half particularly in its core markets of U.K., Indonesia and Nigeria. This growth momentum has helped the group to partially offset the significant impact from high raw material costs and challenging trading conditions in other markets.

“Post period end the group acquired the Fudge hair care brand for £25.5 million as part of its strategy to acquire leading brands and to further widen the category participation of its newly formed beauty division. Other strategic initiatives, such as the new joint venture in Nigeria with Wilmar International, are progressing well. Our balance sheet remains strong, and we have the appetite to pursue further investment opportunities [that] fit our strategic aims. We anticipate trading conditions in some markets will continue to be difficult for the remainder of the year, and, in particular, we are closely monitoring the current economic and social tensions in Nigeria, which may further impact the year-end outturn. Overall, we anticipate that results for the full year will be towards the bottom end of the range of current expectations,” Harvey concluded.

The company also noted profit before tax and exceptional items for the six-month period ending Nov. 30, 2011 was £40.2 million (down from 2010’s £46.2 million) on revenue up 10.5% to £414.0 million (up from 2010’s £374.8 million). There were exceptional charges in the period of £0.9 million, and after the exceptional items, reported profit before tax decreased by 11.7% to £39.3 million (2010’s profit was £44.5 million).

PZ Cussons delivered good revenue growth in the first half with its core markets of U.K., Indonesia and Nigeria performing particularly well. Profits have been impacted as a result of significantly higher raw material costs, adverse exchange rate movements and challenging trading conditions in other markets, particularly Australia. However revenue growth in Africa was strong with positive momentum in Nigeria continuing post the elections of April 2011, though profits were flat as a result of high raw material costs impacting margins. Asia revenue and profit are lower than the prior period as a result of difficult trading conditions in Australia, Thailand and the Middle East, but revenue and profit in Indonesia were ahead of the prior period. Revenue in Europe was higher as a result of good growth in both U.K. divisions, as well as progress in Poland, although margins were affected by higher raw material costs, and trading conditions in Greece remain difficult as a result of the economic environment. Current period results for Europe include a full six-month contribution from St Tropez versus two months post acquisition in the comparative period. The overall half-on-half impact of rises in key raw materials was an oncost of approximately £20 million. Overall exchange rate impact for the group in the period resulted in a decrease in revenue and profitability of circa £8 million and £1.1 million, respectively.

On Jan. 5, 2012, PZ Cussons exchanged contracts for the acquisition, through its beauty division, of the Fudge hair care brand. Completion took place on Jan. 24, 2012, with the brand and associated inventory acquired for £25.5 million in cash. Sold predominantly through salon distribution in the U.K., Australia and New Zealand, Fudge will join the portfolio of brands within PZ Cussons Beauty, the group’s recently formed beauty division, which currently comprises St Tropez, Sanctuary and Charles Worthington. Revenue for the Fudge brand for the year ended June 30, 2011, was £15.7 million with approximately 50% of sales in the U.K. and Europe and 50% in Australia and New Zealand.

Regionally, the company’s Africa division saw Nigeria’s revenue growth as strong following elections earlier in the year, and growth has been achieved in all business units of personal care, home care, electricals and nutrition. Within personal care, brands performing particularly strongly included Premier, Joy and Canoe soaps. Margins have, however, been impacted by high raw material costs with levels equivalent or higher to those experienced during the second half of last year. During the period, the Group’s holding in its listed Nigerian subsidiary has been increased further from 66.8% to 67.4% at a cost of £2.8 million. Toward the end of the period, increasing tensions around fiscal reform resulting in civil disruption began to affect the country. Also revenue and profit in Ghana and Kenya are ahead of the same period last year.

The company’s Asia division continued positive momentum in Indonesia, which has delivered another period of revenue and profit growth largely from the market leading Cussons Baby range. During the period, the brand broadened its customer base through expansion into new distribution channels. In Australia, revenue is lower than the prior period due to competitive trading conditions in the retailers, which have resulted in reduced listings and shelf space and higher levels of promotional activity as well as increased competition from private label products and discount stores. Consequently, reduced revenue against a strong comparative in the first half of last year, together with higher raw material costs, have resulted in a loss in the period. Revenue in Thailand was lower as a result of disruption to sales caused by the recent flooding resulting in a loss for the period whilst results in the Middle East were also adversely affected by social and political unrest in that region.

In Europe, the UK washing and bathing division has experienced good revenue growth despite worsening consumer confidence although continued high levels of promotional activity in the retailers and high raw material prices have impacted margins. New product launches in the period have been well received and the newly formed Beauty division, created to bring the premium beauty brands of Sanctuary, Charles Worthington and St Tropez together under one strategic umbrella, has performed well with an increase in revenue and profit despite tougher trading conditions in all U.K. distribution channels. New product launches have been successful and international expansion of the product range, particularly of St Tropez in the U.S. and Australia, is progressing well. Performance in Poland has been robust with revenue and profit ahead of the prior period with both fabric care and personal care performing well. In Greece, the economic environment has resulted in trading conditions remaining difficult, although a small increase in profit for the period was achieved.

Post period end, two events have affected Nigeria, PZ Cussons’ largest market. First, social instability over the Christmas period led to a state of emergency being declared in a number of northern states, which has impacted sales in those areas. Second, the removal of the fuel duty subsidy led to civil disruption during January and a week-long national strike, which affected production in all factories and sales on a national level, during what is a peak trading period. While the strike has now ended and the fuel subsidies have been partially reintroduced, continued social instability in the north together with ongoing fiscal reforms may create further unrest in the balance of year.

Elsewhere, the company expects that the trading environment will continue to be difficult in some markets given increasing pressures on consumer spending power, continued high levels of promotional activity in developed markets and the U.K. in particular, and ongoing high levels of input costs. At the same time, positive growth rates experienced in the first half, particularly in U.K., Indonesia and Nigeria, give cause for optimism together with input costs now stabilizing albeit at a high level. The company also continues to place a significant focus on brand renovation and further margin improvement.

Performance for the group in the coming months will depend in part on the severity of any further disruption in Nigeria, as well as any impact on consumer disposable income from removal of the fuel subsidy. PZ Cussons anticipates results for the full year will be toward the bottom end of the range of current expectations. Also, recent investments in both acquisitions and capital projects are proving successful and are an important element of the company’s future growth plans. The recent acquisition of Fudge further strengthens the beauty division with excellent opportunity for growth of all its brands both in the U.K. and overseas, and its strong financial position will enable PZ Cussons to invest in further attractive growth opportunities in our core markets.

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