Final Results

PZ CUSSONS PLC 02 August 2005 2nd August 2005 PZ CUSSONS PLC PRELIMINARY ANNOUNCEMENT Highlights •Turnover increased by 5% to £480.1m from £457.9m. •Overall, operating profits have largely been in line with plan, despite a weak dollar and the high cost of oil based materials. However our operations in Russia, which began in January 2004, produced operating losses of approximately £5m and so these were closed in Spring 2005. Pre exceptional profits were £53.9m from £54.1m. •Sterling strengthened against the dollar resulting in a reduction in turnover of £20m and in profits of £3.1m on translation. •Strong performance from Nigeria, with operating profits up by 22%, and reorganisation into separate business units to bring greater focus to growth plans. •Net exceptional charges of £4.7m were incurred in the year. •Net funds at 31st May 2005, after initial acquisition payment of £23.0m for Charles Worthington, amounted to £74.0m. •Proposed dividend increase for year of 10.2% to 35.25p from 32.00p. •Our focus remains on increasing operating margins and pursuing growth in all units, particularly in Nigeria, the UK, Australia and Indonesia. Performance by region Turnover (£m) Operating profit before exceptional items(2) (£m) Restated(1) 2005 2004 2005 2004 Europe 213.0 201.8 21.2 24.7 Africa 159.4 144.2 20.8 19.3 Asia 107.7 111.9 11.9 10.1 ------- ------- ------- -------- Total 480.1 457.9 53.9 54.1 ------- ------- ------- -------- (1) See note 1 (2) Exceptional items are detailed in note 2 PZ CUSSONS PLC Europe In the UK, the major brands performed well although the market was generally difficult in the second half, particularly for Charles Worthington and Imperial Leather. Increases in raw material prices (including packaging materials), particularly those which are oil based, have impacted on margins. The launch of the new Carex bathroom range has gone well. Since the year end sales are improving and meeting expectations. In Eastern Europe the results for Poland were satisfactory; however, as indicated in the interim statement, the results in Russia have been disappointing and losses of approximately £5m were incurred. During the financial year the Polish zloty strengthened significantly against the rouble and this reduced margins, resulting in lower sales with reduced flexibility on pricing and support. A restructuring programme has been undertaken to concentrate our ambitions in Eastern Europe, mainly on Poland, and to establish quickly a profitable level of activity. In addition to our withdrawal from Russia our liquids and creams factory in Warsaw has also been closed. Sales and profits in the Greek unit were marginally up on the previous year. Africa In naira, sales and operating profits in Nigeria have increased by 22%. During the year our Nigerian activities have been split into various business units to bring more focus to each sector as plans for growth are instigated. These cover: • Soap and detergents • Health and beauty • HPZ (white goods) • Nutricima (milk) • Depots A review of requirements for property, plant, people and working capital is now progressing. During the year certain properties have been sold giving rise to a profit of £3m. This property disposal and reinvestment programme will continue over the next few years. Throughout the year the naira remained steady against the dollar. Margins suffered in the first half from the increased cost of raw materials caused by the weakness of the dollar against sterling and high oil prices. However, price increases and cost saving initiatives led to improved margins in the second half. The high oil prices have resulted in major increases in Government revenues which have generally been used to build reserves. The debt forgiveness programme of $18 billion, which has recently been agreed with the Paris Club of creditors, should result in increases in expenditure, particularly on infrastructure projects. Turnover and profitability in Ghana and Kenya were largely in line with expectations. Asia Sales growth was restricted in the region although profitability continued to increase, particularly in Australia, where the margin improvement programme is impacting significantly. The translation impact from the strength of sterling resulted in a £9m reduction in reported turnover and £1m in profits. Trading in Indonesia, Thailand and Malaysia was competitive, limiting price increases, despite oil based cost increases to raw materials and packaging. Australia continues to contribute significantly to the Group and in May 2005 expanded its brand portfolio with the acquisition of the Trix detergent brand. With the continuing losses in the Chinese unit, a decision was made to dispose of the business and this was completed in February 2005, giving rise to an exceptional loss of £3.4m. PZ CUSSONS PLC Major Projects In Nigeria we have invested in a plan to expand the capacities of the detergent factory at Ikorodu by 15% and the soap factory at Aba by 30%. We have also invested in new factories to: • Manufacture refrigerators, freezers and air conditioners with our Chinese partners Haier. Current sales are in the region of £12m per annum, up 50% on last year. • Manufacture a new feminine hygiene range, with technical support from our Greek partner Mega. Current sales are in the region of £1m per annum, up 35% on last year. Furthermore, construction is now largely complete on our exciting new joint venture with the Irish company Glanbia Plc to invest $20m in a milk factory in Nigeria. The factory should be fully operational later in 2005 and will have the capacity for sales in excess of £50m per annum. The powdered milk plant is now in production and a new brand - Nunu - has been launched. The evaporated milk plant will be in production in the Autumn. We are now investigating further opportunities to expand our nutritional foods business in Nigeria based on milk ingredients. In Indonesia we have continued to invest in factory capacity and have recently purchased a new plot of land to enable us to build new factories as we further expand our product and brand ranges. Plans are now being finalised to build a factory to expand our Cussons Baby range. Nutritional foods are also being researched. In the UK, in the last three years, we have purchased the Original Source and Charles Worthington brands which we regard as having considerable potential. Brands With the recent acquisition of the Original Source and Charles Worthington brands, a mixed discipline team has been established to have responsibility for, and to give impetus to, the development of our key international brands - Imperial Leather, Cussons Baby, Carex, Morning Fresh, Original Source and Charles Worthington - throughout all our existing units and to investigate potential in new markets such as the USA where Charles Worthington products are already known. These brands represent approximately 50% of our global business and have five year growth targets in excess of 10% per annum. People A long term people development programme has been launched throughout all units, with a clear objective to improve the quality of our management resource both from within and by external recruitment. The programme will identify and give career planning opportunities to individuals who display Group values and have the ability and potential to progress further. The programme is set in the context of our commitment to establishing a working environment based on a transparent meritocracy and involving excellent local people in the future of their units, reducing our dependency on expatriate management. Supply chain As part of the Group margin improvement programme, a comprehensive review of the supply chain has been undertaken which is now resulting in certain restructuring. In particular, it has been decided to build a new bar soap production factory in Thailand which, together with the existing Indonesian plant, will provide the majority of the UK and Australian markets' soap needs. The new factory should be in full production by 2007 when the UK Nottingham bar soap plant will be closed. Output from the Nottingham factory represents about 17% of our total UK consumer business. Plans relating to the closure of the Australian plant were announced last year. The current weakness in the dollar and the impact of high oil prices on key packaging materials has restricted improvement in margins over the last few months, but our target remains to increase operating margins in the years ahead. Communications There has been considerable investment in systems development in recent years, with all units basing their financial, distribution and supply chain processes on one system, MfgPro. Communication technology has recently become available that covers all geographic areas of our business, including Africa, enabling more reliable voice and data transfer. In January 2005 a contract was agreed with Equant (part of France Telecom) to establish a Virtual Private Network for all units which will enable timely, reliable, consistent and visible information to be instantly available, assisting significantly in achieving rapid progress on our major growth initiatives. Investments The value of our equity portfolio increased by 18% in the year to £18.8m from £15.9m. £3.0m has been taken to profit in relation to recognised gains and released provisions, leaving £2.8m of unrealised surplus at 31st May 2005. Exceptional items During the year our China and Russia businesses were closed incurring exceptional costs of £3.4m and £1.7m respectively. In addition, a provision of £4.9m has been made to cover committed costs in relation to the closure of the Nottingham soap factory. Realisations from the sale of the site are anticipated within three years. Profits on disposal from the sale and leaseback of our head office and the sale of a UK warehouse amounted to £5.3m. Dividend The board is recommending a dividend increase of 10.2% for the year with a proposed final dividend of 26.60p (2004 - 23.95p) per share for a total of 35.25p (2004 - 32.00p). Post balance sheet event Following approval at an extraordinary general meeting of the company held on 28th June 2005, the share capital of the company has been restructured by the conversion of the 'A' non-voting shares into ordinary shares and the repayment and cancellation of the preference shares. Following approval of the High Court, this restructuring is now complete. International Accounting Standards The Group will adopt International Accounting Standards in the year to 31st May 2006. It is anticipated that the adoption of these standards will have a negative impact on results although this is not expected to be significant. Further details will be provided in the Annual Report and Accounts. Outlook PZ Cussons has a solid foundation for growth over the next few years and the Group's focus continues on improving margins. The balance sheet remains strong, giving adequate funds to finance opportunities for growth, particularly in Nigeria, where the relatively stable political situation and the strength of the economy, with high oil prices and natural gas coming on stream, give reasons for optimism. The debt forgiveness of $18 billion recently announced by the Paris Club of creditors may prove very important to Nigeria. Consolidated profit and loss account for the year to 31st May 2005 Before Total Before Exceptional exceptional Restated exceptional items Total items Exceptional (note 1) items (note 2) 2005 Restated items 2004 Notes £000 £000 £000 £000 £000 £000 ________________________________________________________________________________________________________ Turnover 1 480,118 - 480,118 457,917 - 457,917 ________________________________________________________________________________________________________ Operating profit 2 53,940 (6,642) 47,298 54,094 (4,741) 49,353 Profit on disposal of intangible fixed assets - - - - 5,943 5,943 Profit on disposal of tangible fixed assets 2 - 5,295 5,295 - - - Loss on sale or termination of operations 2 - (3,352) (3,352) - - - Net investment income 4,647 - 4,647 4,693 - 4,693 ________________________________________________________________________________________________________ Profit on ordinary activities before taxation 1 58,587 (4,699) 53,888 58,787 1,202 59,989 Taxation on profit on ordinary activities (17,968) (616) (18,584) (19,477) 1,259 (18,218) ________________________________________________________________________________________________________ Profit on ordinary activities after taxation 40,619 (5,315) 35,304 39,310 2,461 41,771 Equity minority interests (6,281) - (6,281) (4,034) 542 (3,492) ________________________________________________________________________________________________________ Profit for the financial year 34,338 (5,315) 29,023 35,276 3,003 38,279 Preference dividends (770) - (770) (770) - (770) ________________________________________________________________________________________________________ Profit attributable to ordinary capital 33,568 (5,315) 28,253 34,506 3,003 37,509 Ordinary dividends (14,782) - (14,782) (12,872) - (12,872) ________________________________________________________________________________________________________ Profit for the financial year retained 18,786 (5,315) 13,471 21,634 3,003 24,637 ________________________________________________________________________________________________________ Basic earnings per ordinary share 83.35p (13.20)p 70.15p 85.87p 7.48p 93.35p Diluted earnings per ordinary share 69.37p 92.09p The results for both years arise from continuing operations. Balance sheets as at 31st May 2005 The Group Parent company Restated Restated 2005 2004 2005 2004 (Note 3) (Note 3) £000 £000 £000 £000 ________________________________________________________________________________ Fixed assets Intangible assets 45,287 9,728 - - Tangible assets 139,304 146,657 - - Investments: Subsidiary companies - - 120,061 90,266 Interests in joint ventures: ______________________________________________ Share of gross assets 9,852 1,708 - - Share of gross liabilities (9,748) (1,689) - - ______________________________________________ Share of net assets 104 19 - - Other investments 572 576 - - ______________________________________________ 676 595 - - ________________________________________________________________________________ 185,267 156,980 120,061 90,266 ________________________________________________________________________________ Current assets Stocks 128,923 112,586 - - Debtors falling due within one year 72,323 65,703 36,840 46,739 Debtors falling due after one year 3,900 5,568 975 1,170 Investments 67,000 80,339 26,880 42,883 Cash at bank and in hand 14,845 13,088 - - ________________________________________________________________________________ 286,991 277,284 64,695 90,792 Creditors - amounts falling due within one year (110,373) (101,327) (74,218) (60,419) ________________________________________________________________________________ Net current assets / (liabilities) 176,618 175,957 (9,523) 30,373 ________________________________________________________________________________ Total assets less current liabilities 361,885 332,937 110,538 120,639 Creditors - amounts falling due after one year (17,982) (15,891) (9,127) (7,156) Provisions for liabilities and charges (16,094) (11,193) (349) (76) ________________________________________________________________________________ Net assets 327,809 305,853 101,062 113,407 ________________________________________________________________________________ Capital and reserves Equity ordinary share capital 4,073 4,073 4,073 4,073 Non-equity preference share capital 7,898 7,898 7,898 7,898 ________________________________________________________________________________ Total called up share capital 11,971 11,971 11,971 11,971 Reserves attributable to equity interests: Capital redemption reserve 671 671 671 671 Revaluation reserve 40,249 41,732 - - Profit and loss account 234,645 214,140 89,557 101,735 Other reserve (1,137) (970) (1,137) (970) ________________________________________________________________________________ Total shareholders' funds 286,399 267,544 101,062 113,407 Equity minority interests 41,410 38,309 - - ________________________________________________________________________________ 327,809 305,853 101,062 113,407 ________________________________________________________________________________ Group cash flow statement for the year to 31st May 2005 2005 2004 £000 £000 ________________________________________________________________________________ Cash flow from operating activities 53,866 52,336 Returns on investments and servicing of finance 3,809 965 Taxation (18,650) (15,647) Capital expenditure and financial investment (11,618) (10,000) Acquisitions and disposals (25,183) (100) Equity dividends paid (13,129) (11,910) ________________________________________________________________________________ Cash (outflow) / inflow before use of liquid resources and financing (10,905) 15,644 Management of liquid resources 13,524 (13,579) Financing 2,804 1,831 ________________________________________________________________________________ Increase in cash in the period 5,423 3,896 ________________________________________________________________________________ Reconciliation of net cash flow to movement in net funds 2005 2004 £000 £000 ________________________________________________________________________________ Increase in cash in the period 5,423 3,896 Cash inflow from financing (2,804) (1,831) Cash (inflow) / outflow from management of liquid resources (13,524) 13,579 ________________________________________________________________________________ Change in net funds resulting from cash flows (10,905) 15,644 Currency retranslation 645 (2,575) Borrowings acquired with subsidiary (962) - ________________________________________________________________________________ Movement in net funds in the period (11,222) 13,069 Opening net funds 85,176 72,107 ________________________________________________________________________________ Closing net funds 73,954 85,176 ________________________________________________________________________________ Group cash flow statement continued Analysis of net funds At 31st May Cash Exchange At 31st May 2004 flow Acquisition difference 2005 £000 £000 £000 £000 £000 __________________________________________________________________________________ Cash at bank and in hand 13,088 1,228 - 529 14,845 Overdrafts (4,499) 4,195 - (7) (311) __________________________________________________________________________________ 5,423 Loans due within one year (3,752) (118) (962) (30) (4,862) Loans due after one year - (2,686) - (32) (2,718) __________________________________________________________________________________ (2,804) Deposits 65,046 (14,273) - 45 50,818 Other current asset investments 15,293 749 - 140 16,182 __________________________________________________________________________________ (13,524) __________________________________________________________________________________ 85,176 (10,905) (962) 645 73,954 __________________________________________________________________________________ Statement of total recognised gains and losses 2005 2004 £000 £000 __________________________________________________________________________________ Profit for the financial year 29,023 38,279 Currency retranslation 5,551 (20,085) Surplus on revaluation - 12,702 __________________________________________________________________________________ Total recognised gains and losses for the year 34,574 30,896 __________________________________________________________________________________ NOTES 1 Segmental reporting Third party Profit before turnover Taxation Restated 2005 2004 2005 2004 £000 £000 £000 £000 _______________________________________________________________________________________ Geographical areas - by origin Europe 213,036 201,855 21,219 24,681 Africa 159,367 144,175 20,840 19,325 Asia 107,715 111,887 11,881 10,088 _______________________________________________________________________________________ 480,118 457,917 53,940 54,094 Investment income 5,311 6,561 Interest payable (664) (1,868) _______________________________________________________________________________________ 58,587 58,787 Exceptional items (note 2) (4,699) 1,202 _______________________________________________________________________________________ 53,888 59,989 _______________________________________________________________________________________ During the year the accounting policy for the treatment of sales discounts and rebates has been amended. Discounts and rebates have been accounted for as a reduction in revenue, having previously been treated as a selling and distribution cost. This accounting treatment is consistent with FRS 5 - Application Note G (issued November 2003) and in the directors' opinion more fairly reflects the nature of these transactions. For the 12 month period to May 2004 the impact of this revision has resulted in a reduction of both turnover and selling and distribution expenses of £30,268,000. There is no impact on earnings. 2 Exceptional items Exceptional items recognised during the year ended 31st May 2005 are summarised in the following table and are explained in the narrative below: Profit before Retained taxation Taxation Profit Exceptional item Effect on: £000 £000 £000 ________________________________________________________________________________ Included within operating profit: Restructuring of UK operations (i) (4,905) 1,471 (3,434) Restructuring of Polish operations (ii) (1,737) - (1,737) ________________________________________________________________________________ Sub-total (6,642) 1,471 (5,171) ________________________________________________________________________________ Below operating profit: Sale of UK properties (iii) 5,295 (2,087) 3,208 Loss on disposal of China (iv) (3,352) - (3,352) ________________________________________________________________________________ Sub-total 1,943 (2,087) (144) ________________________________________________________________________________ Total (4,699) (616) (5,315) ________________________________________________________________________________ (i) Restructuring of UK operations During the year, a decision was taken to close the soap manufacturing factory in Nottingham and transfer the production to PZ Cussons Thailand. The charge of £4,905,000 comprises provisions for redundancy and other associated restructuring costs. (ii) Restructuring of Polish operations During the year a restructuring programme was undertaken in Poland to rationalise the Group's Eastern European operations. This involved our withdrawal from Russia and a decision to close the liquids and creams factory in Warsaw resulting in exceptional costs totalling £1,737,000. (iii) Sale of UK properties During the year, the sales of both our Bury warehouse and UK head office were completed resulting in exceptional profits totalling £5,295,000. (iv) Disposal of China business With the continuing losses in the Chinese operating unit a decision was made to dispose of the business. This resulted in an exceptional loss on sale of £3,352,000. 3 New accounting policies The balance sheet has been restated to adopt the provisions of UITF Abstract 38 'Accounting for ESOP Trusts'. This has resulted in a decrease in net assets of £970,000 for 31st May 2004. It has no impact on the profit and loss account in either year. 4 AGM and dividend The board is recommending a final dividend of 26.60p per share which, together with the interim dividend of 8.65p gives a total distribution of 35.25p, an increase of 10.2% over the total of 32.00p last year. The date of the annual general meeting has been fixed for Monday 26th September 2005 and dividend warrants in respect of the proposed final dividend, subject to shareholders' approval, will be posted on the 28th September 2005 to members on the register at 5.00 pm on 26th August 2005. 5 Basis of accounts The 2005 results are an abridged version of the statutory accounts for the year ended 31st May 2005 which have been approved by the board of directors and which carry an unqualified audit report. The 2004 results are an abridged version of the statutory accounts for the year ended 31st May 2004 which carry an unqualified audit report and which have been filed with the Registrar of Companies. Neither accounts contain a statement in respect of s.237(2) or (3) of the Companies Act 1985. Enquiries 2nd August 2005 PZ Cussons Plc 0161 491 8000 Graham Calder (Between 9.00 am and 5.15 pm) Finance Director Weber Shandwick Square Mile 0207 067 0700 Terry Garrett/ John Moriarty This information is provided by RNS The company news service from the London Stock Exchange

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