PZ Cussons issues profit warning amid tough conditions in UK and Nigeria

Consumer products group PZ Cussons updated the market on its trading for the year ending 31 May on Thursday, issuing a profit warning amid tough trading conditions.

The FTSE 250 company had reported in January that performance in the first half of the year was constrained by conditions in the UK and Nigeria, and that delivery of the full year result would be dependent on conditions in those markets for the balance of year.

On Thursday morning, it said it was now apparent that profit for the full year would fall short of expectations, with the board anticipating that profit before tax would be in the range of £80m to £85m.

Cussons said results in its other markets remained “robust”, with performance in Australia, Indonesia and in its beauty division ahead of the prior year.

A number of initiatives were now underway to ensure the group returned to profitable growth for the following year, the board explained.

“The UK washing and bathing division has continued to experience lower levels of purchases reflecting consumer caution across all retail channels caused by economic uncertainty and inflation out-stripping wage growth,” the board explained in its statement.

“Whilst new product launches have been well received, they have not had the desired uplift in sales to compensate for the wider volume and margin shortfall.”

In Nigeria, Cussons said that following significant cost inflation in recent years, consumer discretionary income remained under pressure with subdued buying levels.

“As a result the usual peak season uplift has not occurred to the expected level.

“Consequently inventory levels in the trade remain high leading to intense competition, most noticeably in the milk category, which in return is resulting in lower volumes, prices and margins.”

In light of the pressures, the group said it had initiated a number of actions, including a reassessment of the structure of its operating model to further reduce the overhead base, and a review of product costs with a focus on areas such as packaging reduction.

Cussons said it was also reviewing its milk business in Nigeria with an objective of returning it to profitability, and was investigating a re-prioritisation of its new product pipeline to focus on fewer, bigger projects requiring lower levels of complexity.

“We believe that the initiatives will strengthen the group's brand portfolio to better withstand the subdued levels of consumer confidence and higher levels of competitive intensity which are being faced in most of the markets in which it operates,” the board explained.

“The group's balance sheet remains strong with net debt around 1.5 x EBITDA.”

PZ Cussons said a further trading update would be made on 14 June, after the close of the financial year.