Consumer products giant sticks by full year forecasts, albeit at lower end

Manchester-based consumer products group PZ Cussons said its profit forecast for the full year remains within the consensus range, although at the lower end.

In a trading update for the third quarter to February 29, this morning, the group said it has been hit by the impact of the coronavirus pandemic, but said it entered the current crisis with a strong balance sheet.

The update revealed that its focus brand revenue grew compared with last year, driven by Cussons Baby, Morning Fresh, a return to growth for Carex and a good performance of electricals.

During the reporting period it completed the sale of local Polish brand Luksja and announced the disposal of Nutricima in Nigeria.

The group also appointment a new CEO, Jonathan Myers, starting on May 1.

However, overall revenue in the quarter declined against last year, albeit at a reduced rate compared with the first half of the year.

Key markets continued to be impacted by consumer fragility, and towards the end of the period, the start of COVID-19 pandemic.

The balance sheet remained strong, with net debt of £116m versus £183m at the same time last year, and headroom of £147m under the group’s committed bank facilities. There is a continued focus on management actions to manage liquidity across the group.

It said the impact of COVID-19 continues to be significant, although it varies depending on business unit and market.

In Europe and the Americas, there was some improvement in UK personal care revenues with the rate of decline in the quarter softening compared with the first half of the year.

Carex benefited from a significant increase in demand towards the end of the quarter driven by the pandemic. The beauty category faced tough competitive conditions in the UK in particular, resulting in a decline in revenue for the quarter compared with last year.

In Asia Pacific, continued good growth in Indonesia in the quarter versus last year was offset by increased promotional spend and competitor activities in Australia, mainly across the food and beauty categories.

In Africa, revenue declined overall in the third quarter compared with last year. Continued growth in electricals and in selected premium brands was impacted by continued decline in the value brands in home and personal care.

The group said that its people, whether working from home or keeping its factories around the globe running, have responded fantastically to the challenges of COVID-19.

Key manufacturing sites across all regions remain open, with staff demonstrating huge commitment to ensuring that production of important hygiene products continues.

Where possible, all employees who can work from home are doing so.

The group also said it is conscious of its wider role in society and will continue to support those most at risk: “Our approach varies from market to market but we have programmes in place to distribute free soap, sanitiser and hand wash to those most vulnerable and in need.

“For example, in the UK, our ‘That’s why we Carex’ programme is working with the homeless, elderly and other vulnerable groups. In Nigeria, the PZ Cussons Foundation is distributing soap in the North of the country while in Asia we support those communities close to our manufacturing sites.”

Touching on the implications of the pandemic, it said that in the UK, it is experiencing exceptionally high demand for its Carex hand wash and sanitiser gel products and Imperial Leather soap.

“Our focus remains on sourcing, producing and distributing these. Our team has shown exceptional ability to reconfigure products and supply chains rapidly, but we continue to face challenges in sourcing packaging and raw materials to enable us to fully meet demand.”

However, the group’s beauty business has been severely impacted. St Tropez has been hit hard by the social distancing measures in place in the UK, US and across Europe.

Its significant marketing activities planned for the fourth quarter have been cancelled and the group expects this business to be slow to recover: “Our other beauty brands have also been adversely impacted with the focus of retailers at this time on hygiene and personal care and the closure of hair salons.”

In Asia, the Indonesian business has continued to trade largely as normal with increased customer demand for hygiene-related products offsetting a reduction in some lotions and creams.

Australia has seen a recent spike in demand for Morning Fresh and Raffertys Garden as a result of COVID-19, but also a severe reduction in beauty sales.

The situation in Nigeria is uncertain. The recent fall in the global oil price has led to further economic pressure, and the COVID-19 situation continues to develop. All the Nigerian businesses are likely to be impacted by the significant disruption to both manufacturing and route to market.

The group said it has historically maintained a prudent financial position, and entered the current crisis with a strong balance sheet.

PZ Cussons’ external funding is through a syndicated borrowing facility which is provided by a syndicate of six lenders in the form of a £325m committed multi-currency revolving credit facility committed until 28 November 2023.

As at 29 February 2020, the group had headroom of £147m under its committed facilities.

It said: “We continue to focus on management actions to manage liquidity carefully across the group.

“Recent actions taken have included the cancellation of capital expenditure projects, the review of the cost base, particularly in those areas of the business most impacted by COVID-19 and working capital initiatives across our business.

“At this time, we have not elected to participate in the UK furlough scheme or similar schemes in other countries.”

The group completed the sale of local Polish brand Luksja for £9.2m in the quarter and recently announced the disposal of Nutricima, its Nigerian milk business, for $20.3m. It said its target debt level for the year-end remains at £110m, in line with guidance at the half year.

Regarding the outlook, today’s update said: “Whilst there is a high level of uncertainty regarding the full impact of COVID-19 across all of our different businesses and markets continues, at this point our guidance on profit remains within consensus, albeit at the lower end.

“Given the current uncertain environment, we plan to issue our preliminary results for the year ended 31st May 2020 in late Summer, with a date to be confirmed in due course.”