PZ Cussons – Final Results

Revenue growth, improved operating profit and balance sheet discipline

– growth in adjusted EPS from continuing operations and dividend increased

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2021

PZ Cussons plc (“PZ Cussons” or the “Group”) today issues its preliminary results for the
financial year ended 31 May 2021.

Adjusted measures	Year ended 31 May 2021	Year ended * 31 May 2020	Reported % change	Constant currency % change (1)
Revenue from continuing operations	£603.3m	£587.2m	+2.7%	+7.1%
Adjusted (2) operating profit from continuing operations	£71.0m	£65.9m	+7.7%	+7.6%
Adjusted (2)profit before tax from continuing operations	£68.6m	£61.8m	+11.0%
Adjusted (2)basic EPS from continuing operations	13.12p	12.17p	+7.8%
Net debt (excluding lease liabilities)(3)	£(30.7)m	£(49.2)m
Statutory measures
Operating profit from continuing operations	£65.6m	£22.4m	+193%
Profit before tax from continuing operations	£63.2m	£18.3m	+245%
Profit after tax from continuing operations	£35.0m	£8.8m	+298%
(Loss)/profit after tax from discontinued operations	£(51.6)m	£10.9m	(573)%
(Loss)/profit after tax	£(16.6)m	£19.7m	(184)%
Basic (loss)/earnings per share (EPS)	(3.97)p	5.62p	(171)%
Total dividend per share	6.09p	5.80p	+5.0%

Operating & Financial Highlights – in the first year of our new strategy: Building brands for life. Today and for future generations

– Organic revenue ⁽¹⁾ growth of +7.1%, with all geographic regions and our core categories of Hygiene, Baby and Beauty all in growth.

– Must Win Brands revenue ⁽¹⁾ grew +11%, with 7 of the 8 brands in growth.

– On a two-year cumulative basis, Must Win Brands revenue ⁽¹⁾ grew +21%. Carex revenue doubled, reflecting the increased size of the hand hygiene category in the UK and our continued market-leading position.

– Portfolio Brands revenue ⁽¹⁾ grew +3%, driven by growth in Electricals in Nigeria, partially offset by declines in Imperial Leather and the now disposed of five:am yoghurt business.

– Gross margin increased +60bps to 39.3%, supported by price / mix improvements in each of our core categories.

– Marketing investment increased by over +40% versus the prior year, with all the increase dedicated to Must Win Brands.

– Adjusted operating margin increased +60bps to 11.8%.

– Adjusted profit before tax from continuing operations £68.6m, up +11.0% versus the prior year and ahead of consensus. ⁽⁴⁾

– Adjusted basic earnings per share from continuing operations, at 13.12p, up +7.8% versus the prior year.

– Continued balance sheet discipline in the fourth quarter, with closing net debt (excluding lease liabilities) of £30.7m, lower than the £49.2m at the prior year end.

– A final dividend of 3.42p, making a total of 6.09p for the full year. This +5% increase reflects the Board's confidence in the Group's financial resilience and future growth prospects.

– Adjusting items for FY21 relate primarily to the impact of disposals, Head office and regional restructuring and our simplification project in Nigeria.

– The loss after tax of £(16.6)m, compared to a profit of £19.7m in the prior year, is due to a loss from discontinued operations..

– The loss from discontinued operations, of £(51.6)m, is attributable to the pre-tax loss on disposal of Nutricima of £(40.7)m (including the impact of recycling of historical foreign exchange losses of £(39.9)m), associated tax expenses of £(5.2)m, the loss after tax of Nutricima to the date of disposal of £(4.8)m and losses of £(0.9)m associated with the disposal of Luksja which took place in the prior year.

– Basic earnings per share, showing a loss of (3.97)p, reflects the loss from discontinued operations.

– Profit before tax from continuing operations of £63.2m, compares to a profit of £18.3m in the prior year, explained by the impairments of the Australian brands five:am and Rafferty's Garden in the prior year.

Jonathan Myers, Chief Executive Officer, commented:

“Today we are reporting full year results for FY21 and providing a trading update for the first quarter of FY22.

FY21 represents the first year of our new strategy and the journey to turn around the business. With the return to top and bottom line growth on an adjusted basis and tangible progress on key elements of the strategy, we are pleased with the initial progress made while recognising that we have much more to do. The revenue momentum was broad-based, with all but one of our Must Win Brands and all of our regions in growth. We were able to demonstrate improved levels of profitability and significantly step up investments in marketing activity and commercial capabilities as we set out to be a business that builds stronger brands and serves more consumers. This was set against a backdrop of the Covid-19 pandemic, which saw unprecedented levels of demand for Hygiene products. Our brands were available for our consumers when they needed them most and we retained market leadership – both with Carex in the UK and Morning Fresh in Australia. We were also pleased with the strong performance of our Baby and Beauty businesses, as consumer hygiene habits start to normalise.

The momentum gives us confidence that we have the right strategy for the long-term: Building brands for life. Today and for future generations. We continue to work hard at executing the strategy: sustaining marketing investment behind our brands; simplifying the business; building capabilities; and evolving our culture.

The Board is recommending a final dividend of 3.42p (2020: 3.13p) per share, making a total of 6.09p (2020: 5.80p) per share for the year. This +5% increase reflects the Board's confidence in the Group's financial resilience and future growth prospects.

I am grateful to PZ Cussons employees around the world for their dedication in delivering renewed momentum in the business during a year of such challenge.”

(1)  Revenue growth is quoted on a continuing basis and at constant currency. The definition of constant currency is shown on page 5.

(2)  Adjusting items are detailed in note 2.

(3)  Net debt is defined as cash, short-term deposits and current asset investments, less bank overdrafts and borrowings. It does not include IFRS 16 lease liabilities (refer to note 7).

(4)  Adjusted profit before tax consensus for FY21 was £63-65m.

* The results for the year ended 31 May 2020 have been restated. Further detail is contained within note 10

% change has been omitted where the variance is considered not meaningful (n/m)

The following performance commentary is presented on a continuing operations basis. Growth is shown in constant currency and operating profit is shown and discussed on an adjusted basis unless otherwise stated.

Business Review

Europe & the Americas

– Strong demand for Hygiene products has been complemented by strong revenue growth in our Beauty brands through the second half of the financial year, resulting from increased brand investment, successful activations and improved distribution.

–   Revenue ⁽¹⁾ growth of +4.8% was driven by significant growth in St.Tropez, supported by the successful Ashley Graham influencer campaign in the US and Sanctuary Spa, which has seen strong e-commerce performance.

– Carex revenue grew strongly versus the prior year, despite the comparison with strong demand in Q4 of FY20, with continued demand for both hand sanitiser and hand wash. Despite increased competitor activity, Carex remains the UK market leader for both hand sanitiser and hand wash with a 36% share of the combined category.

– Revenue from Original Source and Imperial leather declined in the year, due to softness in the washing & bathing category since the beginning of the Covid-19 lockdowns and some deliberate production choices to protect Carex supply.

– Adjusted operating profit, of £52.1m, was (3.7)% below the prior year (at constant currency) with improved profitability in Beauty partially offsetting a decline in UK Personal Care due to increased brand investment, fuelling strong Carex revenue growth and an increase in the brand's spontaneous awareness to 49% (2020: 43%).

–     Reported operating profit, of £51.0m, was +4.1% ahead of the prior year (at constant currency) due to adjusting items in the prior year related to the Group pension recharge.

Asia Pacific

– Revenue ⁽¹⁾ growth of +1.7%, across both the key markets of Indonesia and Australia / New Zealand.

– All Must Win Brands grew, including Cussons Baby in Indonesia and Morning Fresh in Australia / New Zealand.

– Cussons Baby in Indonesia remains a market leader, due to maintained brand investment and the relaunch of our baby powder product range.

–      Morning Fresh in Australia increased its market share, was back on TV with a new advertising campaign after four years and launched new innovations into adjacent kitchen hygiene categories.

–     Adjusted operating profit, of £20.7m, was +15.0% above the prior year (at constant currency) and ahead of revenue growth due to a reduction in operating costs driven by head office restructuring in Indonesia and Australia, plus switching to a distributor model in New Zealand.

–  Reported operating profit, of £20.8m, compares with a loss in the prior year due to the prior year charge of £(36.6)m related to the impairment of the five:am and Rafferty's Garden brands in Australia.

– Disposal of five:am yoghurt brand announced on 7 May 2021 and completed on 4 June 2021.

Africa

– Revenue ⁽¹⁾ growth of +16.2%, with growth across all of Nigeria, Kenya and Ghana.

– All Must Win Brands, namely Morning Fresh, Premier, Joy and Cussons Baby grew versus the prior year. Morning Fresh and Joy also increased their market share.

–  Revenue growth across most Portfolio Brands with Electricals, Stella and Canoe in Nigeria all in double-digit growth.

– Adjusted operating profit, of £10.7m, compares with a loss of £(7.6)m in the prior year driven by double-digit revenue growth and improved margin.

– Reported operating profit, of £9.0m, compares to a loss of £(2.9)m in the prior year. The adjusting items in the year relate to our Nigeria simplification project. The adjusting items in the prior year primarily related to accounting for investment properties in Ghana.

– Our Palm Oil joint venture, PZ Wilmar, improved its profitability versus the prior year primarily due to increased distribution. Devon King's and Mamador are the number 1 and number 3 brands in the cooking oil market, respectively.

– Disposal of Nutricima, our Nigerian milk business, on 28 September 2020, resulting in a loss from discontinued operations of £(50.7)m.

– Additional simplification initiatives completed, with the closure of our Coolworld retail electrical stores in the first half, with the review of the product portfolio, route to market, organisational design, infrastructure and non-core assets ongoing.

Central

– Adjusted operating loss of £(12.5)m compares to a profit of £0.7m in the prior year.

– Reported operating loss of £(15.2)m, including the £2.4m non-cash impairment of the investment in Wilmar PZ International Pte Limited, treated as an adjusting item.

– The increased costs include investments in resources and capabilities to develop, deploy and deliver against our new strategy. These include investments in Revenue Growth Management and digital capabilities and the bolstering of the Executive Leadership Team.

– Additionally, driving the increased cost, is the reinstatement of the annual bonus for Group employees, not paid in recent years due to poor business performance historically.

– Central costs also include some global business units that support local markets, for example our in-house fragrance centre of excellence Seven Scent and our procurement hub in Singapore. Notably in FY21, certain restrictions imposed by the Nigerian government and central bank prevented us fully utilising these internal services, and as such, they were loss-making.