Company Announcements

22 September 2021

Revenue growth, improved operating profit and balance sheet discipline

- growth in adjusted EPS from continuing operations and dividend increased

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2021

PZ Cussons plc ("PZ Cussons" or the "Group") today issues its preliminary results for the
financial year ended 31 May 2021.

Operating & Financial Highlights - in the first year of our new strategy: Building brands for life. Today and for future generations

-      Organic revenue ⁽¹⁾ growth of +7.1%, with all geographic regions and our core categories of Hygiene, Baby and Beauty all in growth.

-      Must Win Brands revenue ⁽¹⁾ grew +11%, with 7 of the 8 brands in growth.

-      On a two-year cumulative basis, Must Win Brands revenue ⁽¹⁾ grew +21%. Carex revenue doubled, reflecting the increased size of the hand hygiene category in the UK and our continued market-leading position.

-      Portfolio Brands revenue ⁽¹⁾ grew +3%, driven by growth in Electricals in Nigeria, partially offset by declines in Imperial Leather and the now disposed of five:am yoghurt business.

-      Gross margin increased +60bps to 39.3%, supported by price / mix improvements in each of our core categories.

-      Marketing investment increased by over +40% versus the prior year, with all the increase dedicated to Must Win Brands.

-      Adjusted operating margin increased +60bps to 11.8%.

-      Adjusted profit before tax from continuing operations £68.6m, up +11.0% versus the prior year and ahead of consensus. ⁽⁴⁾

-      Adjusted basic earnings per share from continuing operations, at 13.12p, up +7.8% versus the prior year.

-      Continued balance sheet discipline in the fourth quarter, with closing net debt (excluding lease liabilities) of £30.7m, lower than the £49.2m at the prior year end.

-      A final dividend of 3.42p, making a total of 6.09p for the full year. This +5% increase reflects the Board's confidence in the Group's financial resilience and future growth prospects.

-     Adjusting items for FY21 relate primarily to the impact of disposals, Head office and regional restructuring and our simplification project in Nigeria.

-      The loss after tax of £(16.6)m, compared to a profit of £19.7m in the prior year, is due to a loss from discontinued operations..

-    The loss from discontinued operations, of £(51.6)m, is attributable to the pre-tax loss on disposal of Nutricima of £(40.7)m (including the impact of recycling of historical foreign exchange losses of £(39.9)m), associated tax expenses of £(5.2)m, the loss after tax of Nutricima to the date of disposal of £(4.8)m and losses of £(0.9)m associated with the disposal of Luksja which took place in the prior year.

-      Basic earnings per share, showing a loss of (3.97)p, reflects the loss from discontinued operations.

-      Profit before tax from continuing operations of £63.2m, compares to a profit of £18.3m in the prior year, explained by the impairments of the Australian brands five:am and Rafferty's Garden in the prior year.

Jonathan Myers, Chief Executive Officer, commented:

"Today we are reporting full year results for FY21 and providing a trading update for the first quarter of FY22.

FY21 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. 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.

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.

The Board is recommending a final dividend of 3.42p (2020: 3.13p) per share, making a total of 6.09p (2020: 5.80p) per share for the year. This +5% increase reflects the Board's confidence in the Group's financial resilience and future growth prospects.

I am grateful to PZ Cussons employees around the world for their dedication in delivering renewed momentum in the business during a year of such challenge."

(1)   Revenue growth is quoted on a continuing basis and at constant currency. The definition of constant currency is shown on page 5.

(2)   Adjusting items are detailed in note 2.

(3)   Net debt is defined as cash, short-term deposits and current asset investments, less bank overdrafts and borrowings. It does not include IFRS 16 lease liabilities (refer to note 7).

(4)   Adjusted profit before tax consensus for FY21 was £63-65m.

* The results for the year ended 31 May 2020 have been restated. Further detail is contained within note 10

% change has been omitted where the variance is considered not meaningful (n/m)

The following performance commentary is presented on a continuing operations basis. Growth is shown in constant currency and operating profit is shown and discussed on an adjusted basis unless otherwise stated.

Business Review

Europe & the Americas
 

-     Strong demand for Hygiene products has been complemented by strong revenue growth in our Beauty brands through the second half of the financial year, resulting from increased brand investment, successful activations and improved distribution.

-     Revenue ⁽¹⁾ growth of +4.8% was driven by significant growth in St.Tropez, supported by the successful Ashley Graham influencer campaign in the US and Sanctuary Spa, which has seen strong e-commerce performance.

-    Carex revenue grew strongly versus the prior year, despite the comparison with strong demand in Q4 of FY20, with continued demand for both hand sanitiser and hand wash. Despite increased competitor activity, Carex remains the UK market leader for both hand sanitiser and hand wash with a 36% share of the combined category.

-   Revenue from Original Source and Imperial leather declined in the year, due to softness in the washing & bathing category since the beginning of the Covid-19 lockdowns and some deliberate production choices to protect Carex supply.

-    Adjusted operating profit, of £52.1m, was (3.7)% below the prior year (at constant currency) with improved profitability in Beauty partially offsetting a decline in UK Personal Care due to increased brand investment, fuelling strong Carex revenue growth and an increase in the brand's spontaneous awareness to 49% (2020: 43%).

-     Reported operating profit, of £51.0m, was +4.1% ahead of the prior year (at constant currency) due to adjusting items in the prior year related to the Group pension recharge.

Asia Pacific

-      Revenue ⁽¹⁾ growth of +1.7%, across both the key markets of Indonesia and Australia / New Zealand.

-      All Must Win Brands grew, including Cussons Baby in Indonesia and Morning Fresh in Australia / New Zealand.

-    Cussons Baby in Indonesia remains a market leader, due to maintained brand investment and the relaunch of our baby powder product range.

-      Morning Fresh in Australia increased its market share, was back on TV with a new advertising campaign after four years and launched new innovations into adjacent kitchen hygiene categories.

-     Adjusted operating profit, of £20.7m, was +15.0% above the prior year (at constant currency) and ahead of revenue growth due to a reduction in operating costs driven by head office restructuring in Indonesia and Australia, plus switching to a distributor model in New Zealand.

-     Reported operating profit, of £20.8m, compares with a loss in the prior year due to the prior year charge of £(36.6)m related to the impairment of the five:am and Rafferty's Garden brands in Australia.

-      Disposal of five:am yoghurt brand announced on 7 May 2021 and completed on 4 June 2021.

Africa
 

-       Revenue ⁽¹⁾ growth of +16.2%, with growth across all of Nigeria, Kenya and Ghana.

-     All Must Win Brands, namely Morning Fresh, Premier, Joy and Cussons Baby grew versus the prior year. Morning Fresh and Joy also increased their market share.

-       Revenue growth across most Portfolio Brands with Electricals, Stella and Canoe in Nigeria all in double-digit growth.

-      Adjusted operating profit, of £10.7m, compares with a loss of £(7.6)m in the prior year driven by double-digit revenue growth and improved margin.

-     Reported operating profit, of £9.0m, compares to a loss of £(2.9)m in the prior year. The adjusting items in the year relate to our Nigeria simplification project. The adjusting items in the prior year primarily related to accounting for investment properties in Ghana.

-     Our Palm Oil joint venture, PZ Wilmar, improved its profitability versus the prior year primarily due to increased distribution. Devon King's and Mamador are the number 1 and number 3 brands in the cooking oil market, respectively.

-      Disposal of Nutricima, our Nigerian milk business, on 28 September 2020, resulting in a loss from discontinued operations of £(50.7)m.

-     Additional simplification initiatives completed, with the closure of our Coolworld retail electrical stores in the first half, with the review of the product portfolio, route to market, organisational design, infrastructure and non-core assets ongoing.

Central
 

-      Adjusted operating loss of £(12.5)m compares to a profit of £0.7m in the prior year.

-    Reported operating loss of £(15.2)m, including the £2.4m non-cash impairment of the investment in Wilmar PZ International Pte Limited, treated as an adjusting item.

-     The increased costs include investments in resources and capabilities to develop, deploy and deliver against our new strategy. These include investments in Revenue Growth Management and digital capabilities and the bolstering of the Executive Leadership Team.

-      Additionally, driving the increased cost, is the reinstatement of the annual bonus for Group employees, not paid in recent years due to poor business performance historically.

-     Central costs also include some global business units that support local markets, for example our in-house fragrance centre of excellence Seven Scent and our procurement hub in Singapore. Notably in FY21, certain restrictions imposed by the Nigerian government and central bank prevented us fully utilising these internal services, and as such, they were loss-making.

For further enquiries, please contact

Investors                                Sarah Pollard, PZ Cussons plc - Chief Financial Officer                                            0161 435 1000

Media                                     Tim Linacre / Guy Scarborough / Bryn Woodward - Instinctif                                     020 7457 2020

Investor and Analyst conference call

PZ Cussons management will host a webcast for analysts and investors at 9.30am to present the results and provide the opportunity for Q&A.

The presentation slides to accompany the conference call are available to download from the website at www.pzcussons.com.

The Annual General Meeting will be held on 23 November 2021. Subject to approval at the AGM, the final dividend will be paid on 30 November 2021 to shareholders on the register at the close of business on 22 October 2021.

Cautionary note regarding forward-looking statements

This announcement contains certain forward-looking statements relating to expected or anticipated results, performance or events. Such statements are subject to normal risks associated with the uncertainties in our business, supply chain and consumer demand along with risks associated with macro-economic, political and social factors in the markets in which we operate. Whilst we believe that the expectations reflected herein are reasonable based on the information we have as at the date of this announcement, actual outcomes may vary significantly owing to factors outside the control of the Group, such as cost of materials or demand for our products, or within our control such as our investment decisions, allocation of resources or changes to our plans or strategy. The Group expressly disclaims any obligation to revise forward-looking statements made in this or other announcements to reflect changes in our expectations or circumstances. No reliance may be placed on the forward-looking statements contained within this announcement.

Basis of Preparation

The accounting policies applied in our financial statements are explained in full within our FY20 Annual Report and Financial Statements. The Directors continue to adopt the going concern basis in preparing the accounts on the basis that the Group's strong liquidity position is sufficient to meet the Group's forecasted funding needs, including those modelled in a downside case.

The discontinued operations presented predominantly reflect Nutricima Ltd, the assets of which were disposed of on 28 September 2020. The loss from discontinued operations of £(51.6)m was attributable to the pre-tax loss on disposal of Nutricima of £(40.7)m (including the impact of recycling of historical foreign exchange losses of £(39.9)m), associated tax expenses of £(5.2)m, the loss after tax of Nutricima to the date of disposal of £(4.8)m and losses of £(0.9)m associated with the disposal of Luksja which took place in the prior year. Further detail is available in note 8.

On 4 June 2021, PZ Cussons plc completed the sale of the assets associated with five:am, which was the Group's yoghurt business in Australia. On this date, the control of the assets passed to the acquirer, Barambah Organics. The results of five:am have not been reported within discontinued operations as the disposal of five:am does not represent a disposal of a major line of business or an exit from a geographical area of operation.

In our Financial Statements we use alternative performance measures that are not recognised under IFRS. These metrics are used to allow the readers of the Financial Statements to obtain a more consistent comparison of the performance of the Group by adjusting for certain items which, if included, could distort the understanding of the Group's performance and comparability between periods. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation represents a change from the Group's previous practice of reporting exceptional items, and will be  adopted on a consistent basis for the purposes of the half year and full year reporting going forward. Where relevant, comparative IFRS measures have also been presented.

Adjusted results are presented before adjusting items which in the financial year, on a pre-tax basis, include £(40.7)m of costs related to the disposal of Nutricima, £(3.8)m of costs related to Nigeria simplification, £(2.8)m of costs related to Group and regional restructuring, a net £1.2m impact of classification of five:am assets as held for sale and £(0.4)m costs related to the disposal of the Luksja brand in Poland. Further detail is available in note 2.

The adjusted and reported results for the financial year are presented with variances to the prior year results and also as variances between the current and prior period on a constant currency basis. The constant currency impact has been derived by retranslating the 2020 results using 2021 average foreign currency exchange rates. The translational impact was a £(24.1) million loss on revenue, a £0.1 million gain on adjusted operating profit before tax and a £(2.0)m loss on reported operating profit before tax.

As a business we continue to make decisions on a geographic basis, and the information reviewed by the Chief Operating Decision Maker is based on a geographic segmentation of the business. Therefore, the financial performance discussed below is focused on the performance of the key regions. Further detail on the segmental performance is detailed in note 1 to the Financial Statements.

FRC review of 2020 Annual Report and Accounts and 2021 Interim Financial Information 

On 22 April 2021 the Company received a letter from the Financial Reporting Council ('FRC') following a review of the Company's FY20 Annual Report and Accounts.  The review conducted by the FRC was part of its ongoing cyclical review of FTSE listed companies. The review conducted by the FRC was based solely on the Group's published FY20 Annual Report and Accounts and does not provide any assurance that the Annual Report and Accounts are correct in all material respects. The FRC letter noted a number of questions and observations relating to the Company's accounts.  The Company responded to the FRC letter undertaking to restate or correct certain disclosures made in the Company's FY20 Annual Report and Accounts and also to make certain changes to the Company's accounting policies for subsequent years in order to further improve and clarify our financial reporting.  The FRC advised the company that its review had been satisfactorily closed on 13 September 2021. Further detail of the FRC's review is provided in note 10 and the Company's full response will be provided within our FY21 Annual Report and Financial Statements in due course.

Financial Review

On an IFRS basis, the loss after tax of £(16.6)m (2020: profit after tax of £19.7m) was driven by the £(51.6)m loss from discontinued operations which was attributable to the pre-tax loss on disposal of Nutricima of £(40.7)m (including the impact of recycling of historical foreign exchange losses of £(39.9)m), associated tax expenses of £(5.2)m, the loss after tax of Nutricima to the date of disposal of £(4.8)m and losses of £(0.9)m associated with the disposal of Luksja which took place in the prior year. Further detail is available in note 8... The  basic loss per share of (3.97)p (2020: earnings of 5.62p) is due to this loss after tax. 

Adjusted profit before tax from continuing operations, of £68.6m, was up +11.0% versus the prior year, driven by broad-based revenue growth and improved operating margin. Reported profit before tax from continuing operations, of £63.2m, up +245% versus the prior year is further explained by the impairments of the Australian brands five:am and Rafferty's Garden in FY20.

Revenue, at £603.3m, grew +2.7% with all regions and our core categories of Hygiene, Baby and Beauty all in growth. On a constant currency basis, revenue growth was 7.1%. Gross margin increased +60bps to 39.3%, supported by positive price / mix in each of our core categories. Additionally, marketing investment increased by over +40% on the prior year, with all the increase dedicated to Must Win Brands.

In Europe & the Americas, adjusted operating profit of £52.1m was (3.5)% lower than prior year (at constant currency). Profit growth in the Beauty business partially offset a decline in profit in the UK personal care business due to increased brand investment, predominantly behind Carex fuelling strong growth and an increase in spontaneous awareness to 49%, from 43% in the previous year. Beauty revenue benefitted from significant growth in St.Tropez, supported by the successful Ashley Graham influencer campaign in the US with further strong growth in Sanctuary Spa.

In Asia Pacific, adjusted operating profit of £20.7m was +15.0% higher than prior year at constant currency. This was stronger than revenue growth due to a reduction in operating costs driven by regional head office restructuring within Indonesia and Australia and switching to a distributor model in New Zealand. Revenue growth of +1.7% with both key markets of Indonesia and Australia / New Zealand in growth. Both markets saw brand investment benefit our key brands with market share gains seen in Cussons Baby in Indonesia and Morning Fresh in Australia.

Africa adjusted operating profit of £10.7m compares to a loss of £(7.6)m in the prior year. The improved profitability was due to strong revenue growth, improved adjusted operating profit margins and increased profit from our joint venture, Wilmar, due to increased distribution. Revenue growth (at constant currency) of +16.2% with growth across each of Nigeria, Kenya and Ghana. Additionally, all Must Win Brands in Africa were in growth versus prior year and each increased their market share.

Net finance costs of £(2.4)m (2020: £(4.1)m) reduced compared to the prior year, reflecting higher interest received on cash balances and lower interest paid on borrowings due to a reduction in the drawdown on our revolving credit facility. The balance drawn down at year end was £118m compared to £127m in the prior year.

Adjusted profit before tax of £68.6m (2020: £61.8m) reflects the growth in revenue and improved operating margin and the reduced finance costs compared to the prior year. The effective tax rate on adjusted profit was 21.0% (2020: 23.5%). The reduction in tax rate compared to last year is due to the release of tax provisions related to tax estimates for items in the UK and Nigeria.

Adjusted basic earnings per share from continuing operations was 13.12p (2020: 12.17p), up +7.8% versus the prior year.

In the year the Group incurred adjusting items which on a post-tax basis amounted to a charge of £(65.5)m. These are detailed further in note 2. The most significant items were related to the loss on disposal of Nutricima of £(45.9)m, which has been included in discontinued operations, and the deferred tax impact of the UK tax rate change of £(14.2)m, costs relating to our Nigeria simplication project of £(3.6)m, and costs of Group and regional restructuring of £(2.3)m, all of which have been included in continuing operations.

The balance sheet remains strong, with net debt, (defined as cash, short-term deposits and current asset investments, less bank overdrafts and borrowings and excluding lease liabilities) at £30.7m (2020: £49.2m). The reduction was due to proceeds from operations, plus the proceeds from the disposal of Nutricima, offset by the impacts of electing to cease paying for vendor financing within the UK and Indonesia, the provision of additional short-term funding to our PZ Wilmar joint venture, and our elective repayment of the UK government Covid-19 VAT deferral scheme. Net assets at 31 May 2021 were £381.8m (2020: £421.2m). The group is funded by a £325m revolving credit facility, committed until 28 November 2023, of which £118m is drawn down as at 31 May 2021 (2020: £127m).

Total free cash flow, defined as cash generated from operating activities less capital expenditure, was £64.5m (2020: £121.8m) representing a conversion rate of 70.4% (2020: 133.3%). This reflects the election to cease paying for vendor financing within the UK and Indonesia.

The Group's three UK pension schemes have an aggregate accounting surplus under IAS 19 of £29.1m, after the restriction due to asset ceiling (2020: £38.4m). The overseas scheme reported a deficit of £(8.4)m (2020: £(7.7)m).

The Board is recommending a final dividend of 3.42p (2020: 3.13p) per share making a total of 6.09p (2020: 5.80p) per share for the year.

*The results for the year ended 31 May 2020 have been restated to reflect prior year adjustments. Further details are set out in note 10.

^{^}free cash flow conversion rate is calculated as free cash flow divided by adjusted EBITDA

A complete set of alternative performance measures, with reconciliations to statutory numbers, will be provided in the Annual Report and Financial Statements in due course.

Reporting segments - continuing operations

Consolidated Income Statement

Year ended 31 May 2021

*The results for the year ended 31 May 2020 have been restated to reflect prior year adjustments. Further details are set out in note 10.

Consolidated Statement of Comprehensive Income

Year ended 31 May 2021

*The results for the year ended 31 May 2020 have been restated to reflect prior year adjustments. Further details are set out in note 10.

Consolidated Balance Sheet

*The results for the year ended 31 May 2020 have been restated to reflect prior year adjustments. Further details are set out in note 10.