PZ Cussons Plc announced its interim results for the six months ended November 30, 2012. Overall revenue for the period revenue was 2.7% higher in constant currency and flat in sterling after a negative exchange impact of circa £10 million. Revenue growth was achieved in the U.K., Poland, Indonesia and in the smaller markets of Kenya, Ghana, Thailand and the Middle East. Revenue was lower in Australia as a result of restructuring the business to focus on the most profitable lines; in Nigeria as a result of unrest in the north, flooding in a large number of states and the impact from the fuel duty subsidy reduction earlier in the year; and in Greece as a result of the continued economic downturn.
Operating profits were 15% higher than the prior period in constant currency and 13% higher in sterling after a negative exchange impact of circa £0.8 million.The increase was driven in particular by an improvement in the performance of the Australian business and a robust performance in the U.K. and was achieved despite a significant investment in the period in the launch of the new mother and baby brand Cussons Mum & Me into the U.K. marketplace. PZ Cussons’ balance sheet remains strong with only a small net debt position at the period end.
In Nigeria, which accounts for approximately 90% of African revenues, the period was dominated by three external factors. First social unrest in the north of the country continued to affect the business as a result of disruption to trade and transport routes. Second, Nigeria suffered its worst flooding in decades, particularly affecting the middle part of the country, and this affected trade during September and October. And third, consumers across the country continue to adjust to lower disposable incomes as a result of the removal of part of the fuel duty subsidy in January 2012. Despite these three challenging external factors, revenue and profits were only slightly lower than the prior period as a result of the continued focus on brand innovation, the development of new distribution points across the country and particularly in the east, and the benefit of margin improvement projects within the business. During the period, the group’s holding in its listed Nigerian subsidiary has been increased further from 68.8% to 69.3% at a cost of £2.3 million. Also, the regulations were changed in Nigeria to increase the maximum single holding in public companies from 75% to 80%.
Revenue and profit in Ghana and Kenya are ahead of the same period last year. The production facility in Ghana was closed just after the period end as part of the supply chain optimization project with products now sourced either from the group’s facilities in Nigeria or from third parties.
For the company’s in Asia, continued positive momentum in Indonesia has delivered another period of revenue growth largely from the Cussons Baby range. Profits are slightly ahead in sterling despite an approximate 10% weakening in the rupiah to dollar exchange rate and a significant increase in wage costs as a result of government mandated rises. Further margin improvement initiatives are planned for the second half to counter additional wage increases announced for 2013.
In Australia, while trading conditions remain challenging, measures taken to improve the performance of the business have now been successfully implemented. The production facility was closed early in the period with all products now sourced either from the group’s facilities in Indonesia and Thailand or from third parties. Revenue is lower than the prior period as a result of continued focus on the two main brands of Radiant (fabric care) and Morning Fresh (dish care) and this focus, together with the lower cost base, has resulted in a return to profitability in the period. Focus also continues to be placed around growing the personal care and beauty portfolios.
Revenue and profitability in Thailand and the Middle East were at a similar level to the comparative period.
Performance in the U.K. washing and bathing division has been robust despite continued high levels of promotional activity within the trade. Consumers are tending to choose within a basket of preferred brands and are making decisions based on a combination of brand preference and the best deal available. The business remains focused on influencing that decision-making toward its portfolio through greater levels of brand innovation and renovation and through ensuring that both product and price are tailored specifically for the U.K. market. During the period all three brands of Imperial Leather, Carex and Original Source performed well. Focus also continues to be placed on expanding distribution points for all three brands across the U.K.
Also during the period, a new brand was launched into the U.K. market. Cussons Mum & Me, a range of products for mother and baby, achieved full U.K. distribution by the end of July into all grocery channels. Offering a complete range of care solutions across bump, new mum and baby sub-categories, the brand has been positively received by consumers. Significant investment is being made in a comprehensive marketing campaign across all forms of media and with a focus on driving trial. Further new product launches are planned for the second half together with expansion of the brand into new distribution points.
The U.K. beauty division has also performed well with revenue and profitability ahead of the prior period. While St Tropez was adversely affected by the poor U.K. summer, the brand has continued to grow in the U.S. and Australia and is achieving new distribution in selected other geographies focused wholly on the more premium distribution channels.
Sanctuary also has continued to grow boosted by its new Active Reverse skin care range with Darcey Bussell as brand ambassador, and the Charles Worthington portfolio has now been completely redesigned with a more premium look and feel ahead of a major relaunch in the second half. The Fudge hair care brand, acquired in January 2012, has performed well post acquisition and has quickly moved into e-commerce with the launch of the Fudge.com website during the period.
Performance in Poland has been very strong with revenue and profitability ahead of the prior period with both fabric care and personal care performing well. In Greece, the economic environment continues to worsen, and while the business is still trading profitably this is at lower levels than the previous period.
Regarding its outlook, PZ Cussons’ notes that trading conditions in most markets remain challenging with continued pressures on consumer disposable income. Nevertheless, the company’s focus remains on both brand innovation and renovation and also cost optimization in all areas of the business. New product launches are planned in all portfolios and geographies in the second half of the year, reflecting the importance of new offerings to consumers as markets remain fiercely competitive. Overall performance since the period end has been in line with expectations. The board remains confident of a return to profitable growth for the full year with the range of potential outcomes being largely dependent on trading in the group’s largest market Nigeria during its peak season over the coming months.
