PZ Cussons Plc, a leading international consumer products group, announces its final results for the year ended 31 May 2018.

 

		(Restated)*
Adjusted results (before exceptional items1)	Year ended 31 May 2018	Year ended 31 May 2017	Reported % change	Constant currency % change3	Like for like % change4
Revenue2	£762.6m	£809.2m	(5.8%)	(2.3%)	(2.3%)
Adjusted operating profit	£85.7m	£104.8m	(18.2%)	(15.9%)	(15.9%)
Adjusted profit before tax	£80.1m	£102.0m	(21.5%)	(19.0%)	(19.0%)
Adjusted basic earnings per share	13.39p	16.42p	(18.5%)
Statutory results (after exceptional items1)
Revenue2	£762.6m	£809.2m
Operating profit	£72.2m	£89.3m
Profit before tax	£66.6m	£86.5m
Basic earnings per share	11.41p	14.91p
Total dividend per share	8.28p	8.28p
Net debt5	(£165.4m)	(£143.8m)
*Restated to reflect a change in accounting policy in relation to recognition of pension surpluses as further described on page 5.

 

 

HIGHLIGHTS

 

Group

·     Adjusted profit before tax lower than the prior year largely due to poor performance in Nigeria as a result of the macro economic situation

·      Brand shares maintained or growing in most of the Group's major markets and categories

·      Group wide initiatives underway to strengthen brand portfolios and reduce cost base

·      Strong balance sheet with net debt at 1.5 x EBITDA⁶

·      Dividend maintained at prior year level

 

Africa

·    Significantly lower profits in Nigeria due to market contraction as a result of lack of liquidity in the trade and reduced consumer disposable income

·     Market shares remain strong in all categories of Personal Care, Home Care, Food & Nutrition and Electricals

 

Asia

·   Continued improvement in profitability in Australia across all categories of Personal Care, Home Care and Food & Nutrition

·    Good mix improvement in Indonesia driven by successful new product launches across Cussons Baby, Cussons Kids and Imperial Leather

 

Europe

·      UK Washing and Bathing performance lower than the previous year due to tighter UK retail landscape

·      Good performance in Beauty division across all brands and in both UK and US markets

 

¹ Exceptional items before tax (2018: costs £13.5m; 2017: costs £15.5m), relate to various items which are detailed in note 2.

² Revenue has been stated excluding joint ventures revenue of £141.6m (2017: £156.9m).

³ Constant currency comparison (2017 results retranslated at 2018 exchange rates).

⁴ Like for like comparison after adjusting 2017 for constant currency. There were no acquisitions or disposals in the current or prior year.

⁵ Net debt, above and hereafter, is defined as cash, short-term deposits and current asset investments, less bank overdrafts and borrowings (refer to note 8).

⁶ EBITDA (as used in this ratio calculation and referenced hereafter) is defined as adjusted operating profit before charges for depreciation and amortisation for the 12 months to the reporting date, in this case the 12 months to 31 May 2018.

 

 

Commenting today, Caroline Silver (Chair) said:

 

“Whilst the Group has delivered good profit growth in Asia and a creditable result in Europe, macro-conditions in Nigeria have resulted in a sharp decline in Africa profits for the year and hence a disappointing result for the Group as a whole. 

 

Within Africa, and in particular Nigeria, it is important to note that there has been no structural change in the landscape of the categories in which we operate. We remain proud of our brand portfolios across Personal Care, Home Care, Electricals and Food & Nutrition and of our extensive manufacturing and logistics capability, and many of our brands have strengthened their No.1 or No.2 positions during the last year. However, a sustained lack of liquidity at both consumer and trade level has resulted in a significant contraction in the size of the market, resulting in lower volumes, prices and margins. In the absence of an indication as to when liquidity in Nigeria may improve ahead of the February 2019 general elections, we are taking steps to optimise further our overall product portfolio and to reduce our cost base.

 

Within Asia, our businesses in Australia and Indonesia have made sound progress in the year, setting good foundations for growth in the years to come.

 

In Europe, good growth in the Group's Beauty division has helped to partially offset the more challenging trading conditions faced in the UK Washing and Bathing division.

 

Furthermore, for all markets, we remain focused on innovation but with a sharpened lens on fewer, bigger, higher margin product launches which will differentiate further our brands, as well as a reduction in overheads through optimising our operating model.

 

The Group's balance sheet remains strong and we will continue to evaluate growth opportunities utilising the Group's brand portfolio and distribution capability.

 

Whilst we expect another challenging year ahead, the business is well placed to return to growth and consequently the Board has maintained the full year dividend.”

 

 

Press Enquiries

 

PZ Cussons                              Brandon Leigh (Chief Financial Officer)

Instinctif                                   Tim Linacre / Guy Scarborough

 

On 24, 25 and 26 July c/o Instinctif on 020 7457 2020

After 26 July to Brandon Leigh on 0161 435 1236

 

 

Analyst / Investor conference call

 

Management will be hosting a conference call for investors and analysts at 8:30am (UK Time) today. Please call Guy Scarborough at Instinctif Partners for dial-in details on 020 7457 2047 or email Guy.Scarborough@instinctif.com

 

The presentation slides to accompany the conference call will be available to download from the Company's website from 8:00am at http://www.pzcussons.com/en_int/investor 

 

 

 

FINAL RESULTS

FOR THE YEAR ENDED 31 MAY 2018

 

Basis of Presentation

In our financial statements we use alternative performance measures that are not recognised under IFRS. These metrics are used to allow the readers of the financial statements to obtain a more meaningful comparison of the underlying performance of the Group by adjusting for certain items which, if included, could distort the understanding of the Group's performance and comparability between periods.

 

The Directors believe that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a more meaningful basis upon which to analyse underlying business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each of the half year and full year results.

 

Adjusted results are presented before exceptional items which in the current period include certain restructuring costs, net profits on the sale of assets, impairment of assets and certain foreign exchange losses. 

 

Where relevant, comparative IFRS measures have also been presented.

 

The reported results for the current year are presented with variances to reported prior year results and also as variances between the current and prior year on a constant currency basis. The constant currency impact was derived by retranslating the 2017 result using 2018 foreign currency exchange rates. The adverse translational impact on revenue and operating profit was £28.3m and £2.9m respectively. As there were no acquisitions or disposals in the current or prior period, the like for like impact is equal to the constant currency impact.

 

 

Business Review

 

Group Overview

 

Group revenue was 5.8% lower on a reported basis and 2.3% lower on a constant currency basis. Very tough trading conditions in Nigeria accounted for the majority of the reduction in adjusted operating profit, which was 18.2% lower on a reported basis and 15.9% lower on a constant currency basis. After higher interest charges for the year, adjusted profit before tax was £80.1m versus a prior year result of £102.0m. Statutory operating profit  and profit before tax, after exceptional items as detailed in note 2, were £72.2m and £66.6m respectively.

 

Whilst Asia contributed good profit growth and Europe delivered a creditable result given the challenging trading conditions in the UK, the sharp decline in Africa profits resulted in a disappointing outcome for the Group as a whole.

 

The markets in which the Group operates in Nigeria contracted sharply as a result of a lack of liquidity at both consumer and trade level. Nevertheless, the Group's No.1 and No.2 brand shares remain healthy and well placed for when growth returns to the market.

 

As macro conditions remain challenging in most of the markets in which the Group operates, further margin improvement initiatives are being implemented across all aspects of the supply chain. In addition, a further optimisation of the Group's operating model is underway to reduce the overhead base as well as to improve the speed at which new products are brought to market.

 

 

Financial Position Overview

 

The Group's balance sheet remains strong with net debt at 1.5 x EBITDA at the year end. The key elements that affect the Group's net debt position are working capital movements and capital expenditure. During the year, there was an overall working capital outflow of £24.5 million (2017: £10.1 million inflow), an improvement from the outflow of £44.8 million reported at the half year to 30 November 2017. This outflow is mainly driven by a significant reduction in trade creditors which were higher than usual at the end of 2017 due to the implementation of SAP. Capital expenditure was £22.2 million, £6.8 million of which reflects the final costs of the SAP project which went live on 1 June 2017, the balance reflecting non-SAP related capital spend.

 

 

Regional reviews

 

Performance by region

Revenue1 (£m)	2018	2017	Reported % change	Constant currency % change2	Like for like % change3
Africa	275.6	305.6	(9.8%)	(2.0%)	(2.0%)
Asia	212.0	222.7	(4.8%)	(1.8%)	(1.8%)
Europe	275.0	280.9	(2.1%)	(3.0%)	(3.0%)
	762.6	809.2	(5.8%)	(2.3%)	(2.3%)

 

Adjusted operating profit (before exceptional items4)(£m)	2018	(Restated)* 2017	Reported % change	Constant currency % change2	Like for like % change3
Africa	6.3	28.3	(77.7%)	(76.1%)	(76.1%)
Asia	18.6	15.9	17.0%	21.6%	21.6%
Europe	60.8	60.6	0.3%	0.4%	0.4%
	85.7	104.8	(18.2%)	(15.9%)	(15.9%)

^* Restated to reflect a change in accounting policy in relation to recognition of pension surpluses as further described on page 5.

 

¹ Revenue has been stated excluding joint venture revenue of £141.6m (2017: £156.9m).

² Constant currency comparison (2017 results retranslated at 2018 exchange rates).

³ Like for like comparison after adjusting 2017 for constant currency. There were no acquisitions or disposals in the current or prior year.

⁴ Exceptional items before tax (2018: costs £13.5m; 2017: costs £15.5m) relate to various items which are detailed in note 2. The segmental impact of exceptional items before tax is detailed in note 1.

 

 

Regional Overview

 

Africa's results showed a decline in reported revenue of 9.8% and on a constant currency basis of 2.0%. Adjusted operating profit was 77.7% lower on a reported basis and 76.1% lower on a constant currency basis. The sharp decline in adjusted operating profit was caused by a significant market contraction in Nigeria resulting in competitive trading conditions and lower volumes, prices and margins. Whilst the Nutricima milk business was hardest hit by these conditions, resulting in an operating loss for the year, profits were also lower across the rest of the portfolio.

 

Asia's revenue was 4.8% lower on a reported basis and 1.8% lower on a constant currency basis. Adjusted operating profit was 17.0% higher on a reported basis and 21.6% higher on a constant currency basis. The significant growth in profitability was driven by margin improvement across all categories in Australia as well as by mix improvement from new product launches across the Indonesian portfolio.

 

Europe's revenue was 2.1% lower on a reported basis and 3.0% lower on a constant currency basis with adjusted operating profit 0.3% higher on a reported basis and 0.4% higher on a constant currency basis. A good performance by the Beauty division both in the UK and in the US partially offset lower revenue and profit in the UK Washing and Bathing division which was noticeably affected by the tight UK retail landscape.

 

Africa

 

In Nigeria, whilst higher oil prices have contributed to increased foreign exchange reserves for the country and a relatively stable exchange rate regime, liquidity has not flowed down into the economy. In addition, wage inflation has continued to remain well behind the significant cost inflation of recent years, resulting in consumer discretionary income under pressure with subdued buying levels.

 

This produced extremely challenging trading conditions throughout the year with volumes, prices and margins being impacted across most areas of the Nigerian portfolio. The Nutricima milk business was hardest hit by these conditions resulting in an operating loss for the year.

 

There has been no structural change in the landscape of the categories in which we operate with No.1 and No.2 brand shares remaining strong.

 

In Personal Care and Home Care, pack resizing and new product launches have taken place across the portfolio of brands which in Personal Care include Premier, Joy and Imperial Leather in soaps, Cussons Baby in babycare, Robb in medicaments and Stella and Venus in skincare and haircare. In Home Care, these include Canoe, Zip and Tempo in laundry and Morning Fresh in dish care.

 

In Nutricima, aggressive competitor discounting throughout most of the financial year resulted in significantly lower revenue and the business moving from an operating profit to an operating loss. A full reassessment of the business model has taken place with greater focus now being placed on consumer pack innovation.

 

In Electricals, lower discretionary spend levels for the consumer led to reduced revenue and profitability, although market shares across fridges, freezers and air conditioners have either been held or grown. A new range of energy efficient models has been launched with technology that is first to the Nigerian market and will offer consumers significant savings on their energy consumption.

 

Revenue and profitability in the PZ Wilmar joint venture were slightly lower than the previous year mainly due to continued restrictions on the import of palm oil into the country. The business is now diversifying its portfolio into adjacent product categories with a range of consumer spread products launched in the new financial year.

 

Overall profitability for our smaller African businesses in Ghana and Kenya was ahead of the prior year.

 

Asia

 

In Australia, profitability has continued to improve with new product launches and margin improvement initiatives across the key categories of Personal Care, Home Care, Beauty and Food & Nutrition. Significant new product developments have been delivered across the portfolio including new ranges under the Rafferty's Garden brand and new packaging and flavours under the five:am brand.

 

In Indonesia, whilst consumer discretionary spending is under pressure, profitability has been good with mix improvement across both the core Cussons Baby range as well as from recent new product launches under Imperial Leather and Cussons Kids. The development of the non-baby brands has successfully contributed to a broadening of the overall portfolio.

 

Overall profitability in our smaller Asian markets of Thailand and Middle East was ahead of the prior year.

 

 

Europe

 

Revenue and profitability in the UK washing and bathing division have been affected by the tightening UK retail landscape, with consumers shopping more cautiously as a result of economic uncertainty and inflation out-stripping wage growth. Whilst new product launches have been well received during the year, these were not sufficient to compensate for the wider volume and margin shortfall, with volumes remaining very sensitive to price points and discounting. Brand initiatives were accelerated in the second half of the year across Imperial Leather, Carex and Original Source with innovation increasingly important to secure distribution, deliver stand out on shelf and to attract and retain consumers. Initiatives included the launch of Original Source Foamburst, introduction of special edition Unicorn packs and partnerships with the Merlin Entertainment Group and Skinny Dip.

 

The Beauty division has performed well across all brands of St Tropez, Sanctuary, Charles Worthington and Fudge. New product launches have played a key role in demonstrating that all four brands have significant potential from portfolio expansion. In addition, expanding distribution both in store and online continues to play an important part in the growth strategy, both in the UK and in the US market.

 

 

Change in Accounting Policy

 

During the year, the Group revised its accounting policy for the recognition of surpluses in its defined benefit pension schemes: in particular, the policy for determining whether or not it has an unconditional right to a refund of surpluses in its employee pension funds. This change in accounting policy has resulted in the Group de-recognising the pension surplus in relation to the expatriate defined benefit scheme. In accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', the amended policy has been applied retrospectively and prior year restated. See note 9 for further information.

 

 

Change in Accounting Estimate

 

Judgement is required in selecting the rate at which to translate US Dollar denominated balances held in the Group's Nigerian entities into Naira, and the results of the Nigerian businesses into Sterling for consolidation purposes. At 31 May 2017, the rate used by management was the Central Bank of Nigeria (CBN) rate.

 

After closely monitoring the profile of exchange rates accessed by the Group for settlement of transactions throughout the year, and observing a trend towards the majority of the Group's transactions being settled at NIFEX rates that is anticipated to continue, the Group has concluded that NIFEX is the most appropriate rate to translate US Dollar denominated balances in Nigeria as at 31 May 2018. Results for the new financial year beginning 1 June 2018 will be translated at the average NIFEX rate for the relevant reporting period.

 

This change in accounting estimate under IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' has resulted in an exceptional cost of £6.3m as noted below.

 

Exceptional items

 

A net exceptional charge of £13.5m before tax was recorded during the year (2017: charge of £15.5m), relating to previously announced items, being the current year cost of the Group Structure and Systems project (£11.6m), costs relating to the impairment of a non-operational European fixed asset (£3.7m), income relating to the sale of land relating to a redundant manufacturing site in Australia (£8.1m) and foreign exchange losses resulting from a change in the exchange rate used to translate the Nigerian Naira (£6.3m).

 

All of the above have been tax affected. Please see note 2 for further detail.

 

Taxation

 

The effective tax rate before exceptional items was 27.6% (2017 restated: 27.5%).

 

Dividend

 

The Group aims to pay an attractive, sustainable and growing dividend. The Board is recommending a final dividend of 5.61p (2017: 5.61p) per share making a total of 8.28p (2017: 8.28p) per share for the year.

 

The overall dividend remains approximately 1.6 times covered by adjusted earnings per share. Subject to approval at the AGM, the final dividend will be paid on 4 October 2018 to shareholders on the register at the close of business on 10 August 2018.

 

Initiatives

 

There are a number of initiatives underway to improve the efficiency of the business given the challenging macro environment. These include a further optimisation of the Group's operating model, a review of the Group's product portfolio to focus on fewer, bigger projects and a review of product costs across all areas of the business. The cash cost of the further changes to the Group's operating model is expected to be c. £10 million over the next two financial years, offset by lower capital expenditure requirements.

 

Outlook

 

We expect macro conditions to remain challenging in most of the markets in which we operate with general elections in Nigeria and Indonesia falling in the second half of the new financial year. Commodity costs and exchange rates are expected to remain volatile.

 

We have a strong brand portfolio and innovation pipeline, an extensive logistics and distribution capability, and a strong balance sheet which, together with the initiatives outlined above, will ensure the Group is well placed to take advantage of any improvement in the economic climate.