UK and Nigeria remain tough markets for PZ Cussons

Consumer products peddler PZ Cussons updated the market on Thursday, following the end of its trading year on 31 May, reporting that during the last few months of the year, performance in the UK has been in line with its revised expectations.

The FTSE 250 firm had said in January that performance in the first half of the year was constrained by trading conditions in the UK and Nigeria, and in its trading update in March it said conditions in those two markets remained difficult, and that it expected profit before tax for the full year to be in the range of £80m to £85m.

On Thursday it said that whilst trading conditions in Nigeria had tightened further, expected profit before tax for the full year would still be in the range previously indicated, albeit towards the bottom end of the range.

Results in the group's other markets apparently remained robust, with performance in Australia, Indonesia and the group's beauty division ahead of the prior year.

“In Nigeria, whilst higher oil prices have contributed to increased foreign exchange reserves and a relatively stable exchange rate regime, liquidity has not flowed down into the economy,” the PZ Cussons board explained.

“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.”

As a result, the usual peak season uplift had not materialised resulting in volumes, prices and margins being impacted across most areas of the Nigerian portfolio.

Cussons said there had been no structural change in the landscape of the categories in which it operated, with brand shares remaining strong.

The lower profitability was therefore a reflection of a weaker overall market with total volumes, prices and margins all lower.

In Australia, it said profitability of the business had continued to improve, with new product launches and margin improvement initiatives across the key categories of personal care, home care, beauty, and food and nutrition.

For the Indonesia market, profitability had 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.

“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,” the board said.

“Whilst new product launches have been well received, these have not been sufficient to compensate for the wider volume and margin shortfall.”

The Beauty division had performed well, however, with positivity across all brands of St Tropez, Sanctuary, Charles Worthington and Fudge, with good growth in particular coming from the US market.

As the board had outlined in March, there were a number of initiatives underway to improve the efficiency of the business.

That included a further optimisation of the group's operating model, which management said would further reduce the overhead base, as well as improve the speed at which new products were brought to market.

The cash cost would be around £10m over the next two years, offset by lower capital expenditure requirements.

A further optimisation of the Group's product portfolio in Nigeria across the home and personal care (HPC) and Nutricima (milk) businesses was also being implemented, with the objective being to restore margins in the home and personal care business and restore the Nutricima business to profitability.

PZ Cussons was also re-prioritising its new product pipeline in all markets to focus on fewer, bigger projects requiring lower levels of complexity, and was reviewing product costs across all categories with a focus on areas such as packaging reduction, in conjunction with a drive to reduce plastic consumption.

It was also evaluating other growth opportunities, utilising its product portfolio and distribution capability.

“It is expected that macro conditions will remain challenging with general elections in Nigeria and Indonesia falling in the second half of the new financial year,” the boars said of its outlook.

“At the same time, commodity costs and exchange rates are expected to remain volatile.”

Against that backdrop, PZ Cussons said it believed its initiatives, together with management actions being undertaken, would strengthen its brand portfolio to better withstand the subdued levels of consumer confidence and higher levels of competitive intensity, which were being faced in most markets.

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

Final results for the year ended 31 May would be announced on 24 July, the Cussons board confirmed..