Impairment and transformation costs dent annual profits at PZ Cussons

Annual revenues have risen, but pre-tax profits fell, at PZ Cussons, the Manchester consumer products group, it revealed today.

In the year to May 31, 2023, sales for the group improved by 10.7% to £656.3m in a third consecutive year of like-for-like growth. However, pre-tax profits fell 4.2% to £61.8m from £64.5m the previous year.

This reflected a £16.5m impairment of the Sanctuary Spa brand, as well as increased investment related to transformation plans.

The dividend remains static at 6.40p per share.

The group marked a successful first full year of ownership of Childs Farm, with 12% revenue growth in fiscal year 2023, and it said the supply chain transformation is on track, reducing complexity across the group and improving innovation, efficiency and capabilities.

It is the group’s intention to buy out the minority shareholding of PZ Cussons Nigeria, and de-list, creating value for group shareholders and significantly simplifying and strengthening its future business in Africa.

There was an improvement in cash generation with free cash flow of £69.9m (FY22: £58m) primarily driven by an improvement in working capital, resulting in a net adjusted cash position of £5.7m.

However, there was an increase in gross borrowings to £251.2m (FY22: £174m) reflecting the challenges of repatriating cash from Nigeria, where the cash balance was approximately £200m.

The group said its fiscal year 2024 performance to date has been in line with expectations, with modest year on year growth in LFL revenue and a higher operating profit margin. It has seen continued good revenue growth in Nigeria and ANZ, a stable performance in the UK, offset by a further decline in Indonesia.

It said the macroeconomic environment in Nigeria, including the foreign exchange market and other fiscal reforms, will be a key determinant of the overall group FY24 financial results. It has operational and corporate plans in place to mitigate these challenges and is already executing a number of these to improve the performance of the business and to optimise the group’s cash position.

The group said it expects to deliver a fourth consecutive year of group LFL revenue growth, with strong constant currency operating profit growth, benefiting from the changes already made to strengthen the business as well as a slightly more benign input cost environment.

Therefore, it expects to deliver adjusted operating profit within the range of current market expectations, which are a consensus adjusted operating profit range of £61.5m to £68.2m.

Chief executive, Jonathan Myers, said: “We have delivered a third consecutive year of like for like revenue growth and increased operating profit by over 10% since launching our strategy nearly three years ago.

“We have achieved these improvements by investing in our brands and capabilities, serving cost-conscious consumers better with targeted innovation and productivity initiatives helping us to reduce complexity across the group.

“In FY23 sustained momentum in our ANZ business and the return of the UK Personal Care business to growth by the end of the year demonstrated our ability to improve and sustain business unit performance even in a year when we had to absorb further significant cost inflation.”

He added: “Group performance in the new financial year has been in line with our expectations and, with clear near-term priorities, we expect to deliver another year of LFL revenue and strong constant currency operating profit growth in FY24.

“There is more to do as we seek to maximise the company’s full potential, and there are well documented challenges to be navigated in Nigeria. However, we continue to believe that we can build a higher growth, higher margin, simpler and more sustainable business.”