Carex maker happy with new strategy as full year numbers improve

PZ Cussons, the Manchester-based consumer products group and maker of hand cleaner Carex, reported improved revenues and profits for the year to May 31, today.

The board has recommended an improved dividend for shareholders to signal its confidence in the group’s future strategy and its financial resilience, and said it expects to deliver adjusted profit before tax for the current year within forecasts.

Sales for the year rose 7.1%, on a constant currency basis, from £587.2m last year to £603.3m. The pre-tax profit from continuing operations of £63.2m was a 245% improvement on the previous year’s £18.3m, reflecting the demand for personal hygiene products following the coronavirus pandemic and the impairments of the Australian brands five:am and Rafferty’s Garden in the prior year.

Turnover from Carex was 40% better than two years ago, before the pandemic.

On an IFRS basis, the group posted a loss after tax of £16.6m, compared with a profit after tax of £19.7m the prior year, driven by the £51.6m loss from discontinued operations which was attributable to the £40.7m pre-tax loss on disposal of Nutricima, including the impact of recycling of historical foreign exchange losses of £39.9m, associated tax expenses of £5.2m, the loss after tax of Nutricima to the date of disposal of £4.8m and losses of £900,000 associated with the disposal of Luksja, which took place in the prior year.

However, the group said its balance sheet remains strong, with net debt at £30.7m, down from £49.2m in 2020.

Net assets at May 31, 2021 were £381.8m, compared with £421.1m in 2020. The group is funded by a £325m revolving credit facility, committed until November 28, 2023, of which £118m is drawn down as at May 31, 2021, against £127m a year ago.

The board is recommending a final dividend of 3.42p per share, up from 3.13p in 2020, making a total of 6.09p, compared with last year’s 5.80p payout.

Chief executive, Jonathan Myers, said: “Fiscal year 2021 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.”

He added: “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.

Jonathan Myers

“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.”

Looking to the future, he said: “The medium term outlook remains in line with our expectations and we have confidence that our brand and market portfolio will emerge strongly once we cycle through the unprecedented demand for hygiene products at the start of the pandemic.

“We continue to navigate the well-publicised inflationary pressures on commodities and freight. We have a co-ordinated effort under way to reduce product, manufacturing and logistics costs that the consumer does not value while also accelerating our revenue growth management plans to drive price/mix.

“Combined with sustained and more effective marketing investment, stronger brand plans and new product innovation, these interventions mean that, assuming no further disruptions, we expect to return to growth for Q2 and to deliver low to mid single-digit revenue growth for the year, in line with our strategic financial framework we outlined at the Capital Markets Day in March.

“Despite the significant inflationary pressure on our cost base, assuming no further cost headwinds or global supply or other COVID-related disruption, we expect to deliver FY22 adjusted profit before tax within the current range of expectations.”

However, shareholders reacted badly to today’s news with the stock falling to 211.11p per share in early trading, from yesterday’s closing price of 230.5p.

Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “So much for the assumption that everyone’s hygiene habits would permanently change because of the pandemic.

“A year ago, the consensus view was that COVID was so devastating to the world that it taught people the importance of washing their hands more often to reduce the spread of germs. Soap and hand gel sellers looked as if they would be sitting pretty for years ahead.

“Reality has now hit home with a sharp fall in year-on-year sales for one of the UK’s best known hand gel products, Carex. To be fair, its owner PZ Cussons had a high hurdle to beat, given how the year-on-year comparative period saw an unprecedented surge in sales.

“Furthermore, last year it barely had to do any cut-price promotions to shift products as demand went through the roof, implying that profit per bottle could be less this year if it reverts to historical discounting trends.

“Fast forward to the start of its new financial year and there are pressures across the board, principally tough comparative figures to beat, significant cost inflation and ongoing disruptions to supply chains.”

He added: “The company says it should still hit earnings forecasts if life doesn’t get worse, but the sharp decline in its share price in response to the trading update would suggest that investors don’t believe it will hit those estimates.”