Interim Results

PZ CUSSONS PLC 08 February 2005 Tuesday 8th February 2005 PZ CUSSONS PLC INTERIM ANNOUNCEMENT RESULTS FOR THE SIX MONTH PERIOD TO 30TH NOVEMBER 2004: • OPERATING PROFITS REDUCED TO £22.9M FROM £26.2M LARGELY AS A RESULT OF TRADING DIFFICULTIES IN RUSSIA • PRE-TAX PROFITS REDUCED TO £26.2M FROM £27.3M • DILUTED EARNINGS PER SHARE REDUCED TO 39.88p FROM 41.31p • NET FUNDS OF £59.9M AFTER ACQUISITION PAYMENT OF £23.0M FOR CHARLES WORTHINGTON • THE INTERIM DIVIDEND INCREASED BY 7.5% TO 8.65p PER SHARE FROM 8.05P OVERVIEW PROFITABILITY IN THE SIX MONTHS TO 30TH NOVEMBER WAS RESTRICTED BY THE TRADING DIFFICULTIES IN RUSSIA. OTHER UNITS HAVE PERFORMED LARGELY TO PLAN, DESPITE THE WEAK DOLLAR AND THE HIGH COST OF OIL RELATED MATERIALS. THE LAST FIVE YEARS HAVE SEEN SIGNIFICANT CHANGE WITHIN THE PZ CUSSONS GROUP BY IMPROVING MARGINS AND GENERATING CASH. DURING THIS PERIOD WE HAVE INVESTED £38M IN OUR SHARE BUY BACK PROGRAMME TO ENHANCE SHAREHOLDER RETURN AND ALSO IN SIGNIFICANT EXPENDITURE IN GROWTH INITIATIVES TO ENABLE THE GROUP TO REALISE ITS FULL POTENTIAL. GROWTH INITIATIVES 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% • 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. 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 by the summer of 2005 and will have the capacity for sales in excess of £50m per annum. 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, we have also recently purchased the largely UK based brands of Original Source and Charles Worthington which we consider have international potential. Both of these brands have performed up to expectations to date and are considered to have the potential to grow profitably in the USA and in a number of our existing units. The foundations for significant growth have, therefore, now been firmly established and the following has been actioned with a view to our realising the full potential of the initiatives. 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. Brands With the recent acquisition of the Original Source and Charles Worthington brands a new subsidiary has been established - PZ Cussons Brands International - to have responsibility for and to give impetus to the development of our key brands throughout all our existing units, and to investigate potential in new markets, such as the USA where Charles Worthington products are already established. Brands International is a mixed discipline team with representation from within our major units and will have specific control over our Imperial Leather, Cussons Baby, Carex, Morning Fresh, Original Source and Charles Worthington brands. This represents approximately 50% of our global business and has five year growth targets in excess of 10% per annum. 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 to provide the majority of the UK and Australian market soap needs together with the existing Indonesian plant. 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 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 covering all areas of our business including Africa, to enable 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 the three major initiatives mentioned above. PZ CUSSONS' INTERNATIONAL POLICY REMAINS TO: • FOCUS ON SPECIFIC GEOGRAPHICAL MARKETS WHICH HAVE POTENTIAL FOR GROWTH • UNDERSTAND THE NEEDS AND ASPIRATIONS OF LOCAL CONSUMERS AND DEVELOP RELEVANT QUALITY, INNOVATIVE PRODUCTS • ENSURE THE AVAILABILITY OF THESE PRODUCTS VIA THE ESTABLISHMENT OF FIRST CLASS DISTRIBUTION NETWORKS REGIONAL UNIT REVIEWS A decision has now been made to dispose of our Chinese unit, which has been in loss for some years, despite considerable efforts to establish a profitable distribution network. We will retain a presence in China to assist with both our group purchasing initiative and also our rapidly growing Nigerian white goods business in partnership with Haier. The exceptional costs anticipated in disposing of the Chinese unit are expected to be offset by exceptional property disposal gains in the UK. These will arise from the anticipated sale and leaseback of our head office and the profit on the sale of our Bury warehouse in the first half resulting from the decision to outsource UK distribution. In Eastern Europe the results for Poland for the first half year have been satisfactory; however, in Russia, the new distribution arrangements announced last year have not proved to be as successful as intended, largely because of the fall in the value of the rouble against the zloty later in 2004. This has reduced margins significantly and also led to lower sales with reduced flexibility on our pricing policies and has resulted in losses in Russia of £3m in the first half. Action is now being taken to reduce the focus on Russia and concentrate our ambitions in Eastern Europe mainly on Poland. We are undertaking an exercise to restructure the Eastern European business so as to quickly establish a profitable level of activity; however losses are expected to continue at a similar level in the second half year. Europe In the UK, the key brands of Imperial Leather, Morning Fresh, Carex and Original Source performed well with the launch of the Carex bathroom range performing notably strongly. However, increases in raw material prices (including packaging materials) particularly those which are oil based, are impacting on margins. Sales of the new Charles Worthington products have been in line with plan at about £9m in the UK for the five months from 1st July 2004 when the company was acquired. Agreement has now been finalised to maintain brand exclusivity with Boots in the UK. As described above the poor performance in Russia has impacted significantly on the results in Eastern Europe. In Poland itself, although remaining a very competitive market, sales and operating margins have largely been in line with plan and a relaunch of the leading detergent brand E has been successful. Sales in Greece have continued to rise, but margins continued to suffer in the first half as a result of the poor olive oil harvest in 2003. However, indications for the second half look positive with an improved harvest in 2004. Africa Turnover in Nigeria in naira is 17% up on the previous year, with the refrigerator factory performing particularly strongly. Margins have, however, suffered from the increased cost of raw materials caused by the weak dollar and the high oil prices. The high oil prices have resulted in a major increase in Government revenues, however generally these have been used to build reserves and it is only now that that there are indications of increases in Government expenditure. Margins are now improving and are expected to improve further in the second half. Turnover and profitability in Ghana, Kenya and Cameroun have improved. Asia Although sales growth was restricted in the region, overall profitability continued to increase on last year, particularly in Australia, where the margin improvement programme is impacting significantly. Trading in Indonesia, Thailand and Malaysia was competitive with restrictions on sales price increases, despite oil based cost increases to raw and packaging materials. The continuing losses in China have, as already explained, resulted in the decision to dispose of the business. DIVIDENDS An interim dividend of 8.65p per share for the half-year to 30th November 2004 (2003 - 8.05p) has been declared, payable on 6th April 2005 to ordinary and 'A' ordinary shareholders on the register on 4th March 2005. £000 £000 _______________________________________________________________________________ Profit for the period 16,630 Dividends: Preference shares 71/2% cumulative (29) 10% cumulative (356) _______________________________________________________________________________ (385) Ordinary and 'A' ordinary shares Interim at 8.65p (3,484) Adjustment for May 2004 proposed final at 23.95p on shares transferred from ESOT (22) _______________________________________________________________________________ Profit retained 12,739 _______________________________________________________________________________ INVESTMENTS The value of the equity portfolio increased by 9% in the period, to £17.3m from £15.9m. £0.9m has been taken to profit with realised gains and released provisions, leaving £3.5m of unrealised surplus at 30th November 2004. PURCHASE OF OWN SHARES The company has made no further purchases of its own shares in the six months to 30th November 2004. DIRECTORS David Whitewood, Group Sourcing Director, will retire from the company on 31st May 2005. David will be succeeded by John Pantelireis, currently Supply Chain Development Director of PZ Cussons International Ltd, who will join the Board as Supply Chain Director with effect from 1st June 2005. OUTLOOK There are indications of general margin improvements overall in the second half; however, as explained, results will be limited by further operating losses in Russia. The actions being taken as described above, together with the elimination of losses in Russia and China, give the Group further opportunities for profit improvement in the future. Reflecting this we have increased the dividend by 7.5%. The balance sheet remains strong, giving the Group adequate funds to finance planned opportunities for growth and to have the flexibility to purchase its own shares. 8th February 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT Half-year to Half-year to Year to 30th November 30th November 31st May 2004 2003 2004 £000 £000 £000 _______________________________________________________________________________ Turnover 250,705 245,088 488,545 _______________________________________________________________________________ Operating profit before exceptional items 22,923 26,215 54,094 Operating exceptional items - - (4,741) _______________________________________________________________________________ Operating profit after exceptional items 22,923 26,215 49,353 Profit on disposal of intangible fixed assets - - 5,943 Profit on disposal of tangible fixed assets 1,611 - - Net investment income / interest payable 1,678 1,038 4,693 _______________________________________________________________________________ Profit before taxation 26,212 27,253 59,989 Taxation United Kingdom (4,807) (3,945) (8,216) Overseas (3,917) (5,003) (10,002) _______________________________________________________________________________ (8,724) (8,948) (18,218) _______________________________________________________________________________ Profit after taxation 17,488 18,305 41,771 Equity minority interests (858) (1,101) (3,492) _______________________________________________________________________________ Profit attributable to members of the company 16,630 17,204 38,279 Dividends (3,891) (3,633) (13,642) _______________________________________________________________________________ Profit for the period retained 12,739 13,571 24,637 _______________________________________________________________________________ Basic earnings per ordinary and 'A' ordinary share of 10p After exceptional items 40.34p 41.72p 93.35p Before exceptional items 36.34p 41.72p 85.87p Diluted earnings per ordinary and 'A' ordinary share of 10p 39.88p 41.31p 92.09p Dividend per ordinary and 'A' ordinary share of 10p 8.65p 8.05p 32.00p CONSOLIDATED BALANCE SHEET Restated Restated 30th November 30th November 31st May 2004 2003 2004 £000 £000 £000 _______________________________________________________________________________ Fixed assets Intangible assets 39,025 9,994 9,728 Goodwill - 906 - Negative goodwill - (2,192) - _______________________________________________________________________________ - (1,286) - Tangible assets 147,688 139,414 146,657 Interests in joint ventures: _____________________________________ Share of gross assets 8,848 - 1,708 Share of gross liabilities (8,989) - (1,689) _____________________________________ Share of net assets (141) - 19 Other Investments 555 624 576 _____________________________________ 414 624 595 _______________________________________________________________________________ 187,127 148,746 156,980 _______________________________________________________________________________ Current assets Stocks 116,352 114,869 112,586 Debtors due within one year 82,472 66,864 65,703 Debtors due after one year 6,204 5,781 5,568 Investments 52,552 72,526 80,339 Cash at bank and in hand 14,867 9,458 13,088 _______________________________________________________________________________ 272,447 269,498 277,284 Creditors (due within one year) Bank loans and overdrafts (7,115) (7,732) (8,251) Others (102,438) (92,898) (93,076) _______________________________________________________________________________ (109,553) (100,630) (101,327) _______________________________________________________________________________ Net current assets 162,894 168,868 175,957 _______________________________________________________________________________ Total assets less current liabilities 350,021 317,614 332,937 Creditors (due after one year) (20,080) (16,335) (15,891) Provisions for liabilities and charges (12,159) (14,859) (11,193) _______________________________________________________________________________ Net assets 317,782 286,420 305,853 _______________________________________________________________________________ Capital and reserves Equity ordinary share capital 4,073 4,073 4,073 Non-equity preference share capital 7,898 7,898 7,898 _______________________________________________________________________________ Total called up share capital 11,971 11,971 11,971 Reserves attributable to equity interests 270,348 241,099 255,573 _______________________________________________________________________________ Total shareholders' funds 282,319 253,070 267,544 Equity minority interests 35,463 33,350 38,309 _______________________________________________________________________________ 317,782 286,420 305,853 _______________________________________________________________________________ GROUP CASH FLOW STATEMENT Half-year to Half-year to Year to 30th November 30th November 31st May 2004 2003 2004 £000 £000 £000 _______________________________________________________________________________ Cash flow from operating activities 24,425 26,289 52,336 Returns on investments and servicing of finance 3,257 (1,109) 965 Taxation (8,079) (6,616) (15,647) Capital expenditure and financial investment (12,145) (7,670) (10,000) Acquisitions and disposals (22,963) - (100) Equity dividends paid (9,624) (8,668) (11,910) _______________________________________________________________________________ Cash (outflow) / inflow before use of liquid resources and financing (25,129) 2,226 15,644 Management of liquid resources 27,541 (4,293) (13,579) Financing 2,678 555 1,831 _______________________________________________________________________________ Increase / (decrease) in cash in the period 5,090 (1,512) 3,896 _______________________________________________________________________________ Reconciliation of net cash flow to movement in net funds Increase / (decrease) in cash in the period 5,090 (1,512) 3,896 Cash inflow from financing (2,678) (555) (1,831) Cash (inflow) / outflow from management of liquid resources (27,541) 4,293 13,579 _______________________________________________________________________________ Change in net funds resulting from cash flows (25,129) 2,226 15,644 Currency retranslation (135) (638) (2,575) _______________________________________________________________________________ Movement in net funds in the period (25,264) 1,588 13,069 Opening net funds 85,176 72,107 72,107 _______________________________________________________________________________ Closing net funds 59,912 73,695 85,176 _______________________________________________________________________________ Reconciliation of operating profit to operating cash flows Operating profit 22,923 26,215 49,353 Amortisation of goodwill and other intangible assets - 228 448 Depreciation and adjustments on disposals 7,836 9,363 15,480 Provisions 1,085 401 (2,074) Stocks (5,229) (2,517) (4,587) Debtors (13,883) (9,753) (10,114) Creditors 11,693 2,352 218 Add back charge for shares purchased for ESOT - - 731 Impairment of goodwill and intangible fixed assets - - 2,881 _______________________________________________________________________________ Net cash flow from operating activities 24,425 26,289 52,336 _______________________________________________________________________________ Analysis of net funds At 31st At 30th May Cash Exchange November 2004 Flow Difference 2004 £000 £000 £000 £000 _______________________________________________________________________________ Cash in hand and at bank 13,088 1,709 70 14,867 Overdrafts (4,499) 3,381 (1) (1,119) _______________________________________________________________________________ 5,090 Loans due within one year (3,752) (2,286) 42 (5,996) Loans due after one year - (392) - (392) _______________________________________________________________________________ (2,678) Deposits 65,046 (28,937) (221) 35,888 Other current asset investments 15,293 1,396 (25) 16,664 _______________________________________________________________________________ (27,541) _______________________________________________________________________________ 85,176 (25,129) (135) 59,912 _______________________________________________________________________________ STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Half-year to Half-year to Year to 30th November 30th November 31st May 2004 2003 2004 £000 £000 £000 _______________________________________________________________________________ Profit for the period 16,630 17,204 38,279 Currency retranslation 2,365 (11,552) (20,085) Surplus on revaluation - - 12,702 _______________________________________________________________________________ Total recognised gains and losses for the period 18,995 5,652 30,896 _______________________________________________________________________________ RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Restated Restated Half-year to Half-year to Year to 30th November 30th November 31st May 2004 2003 2004 £000 £000 £000 _______________________________________________________________________________ Total recognised gains and losses for the period 18,995 5,652 30,896 Dividends (3,891) (3,633) (13,642) Restatement of ESOT shares (see note 4) (329) (209) (970) _______________________________________________________________________________ Net increase in shareholders' funds 14,775 1,810 16,284 Opening shareholders' funds 267,544 251,260 251,260 _______________________________________________________________________________ Closing shareholders' funds 282,319 253,070 267,544 _______________________________________________________________________________ NOTES 1. During the period the Bury warehouse was sold resulting in a total exceptional profit of £1,611,000. The tax attributable to this profit is nil. 2. Details of the exceptional items recognised in the year to 31st May 2004 are included in the published report and accounts for that period. 3. On 1st July 2004 the Group acquired the Charles Worthington hair care range for an initial cash consideration of £23.0m with further cash consideration payable of between £5m and £12m contingent on future sales performance. A fair value exercise has been performed on the assets and liabilities acquired in the transaction. As part of this process the Charles Worthington brand has been valued at £29.2m. 4. In accordance with UITF38, shares held in the Employee Share Ownership Trust have been reclassified in the balance sheet from investments to the profit and loss account reserve. The impact of this reclassification is to reduce both investments and the profit and loss account reserve at 30th November by £1,299,462 (2003: £209,431). 5. The interim financial statements, which are neither audited nor reviewed, have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts 2004 with the exception of accounting for the ESOT shares which has changed to reflect the requirements of UITF38. These interim financial statements do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures for the year ended 31st May 2004 are an abridged statement of the Group audited accounts for that year. The audited accounts, containing an unqualified audit report, have been delivered to the Registrar of Companies. For futher information please contact: PZ Cussons Plc Graham Calder, Finance Director 0161 491 8000 Weber Shandwick Square Mile Terry Garrett / Rachel Taylor 0207 067 0700 This information is provided by RNS The company news service from the London Stock Exchange

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