Pz Cussons Regulatory News (PZC)

2 Aug 2005 07:01

PZ CUSSONS PLC02 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 EuropeIn the UK, the major brands performed well although the market was generallydifficult in the second half, particularly for Charles Worthington and ImperialLeather. Increases in raw material prices (including packaging materials),particularly those which are oil based, have impacted on margins. The launch ofthe new Carex bathroom range has gone well. Since the year end sales areimproving and meeting expectations. In Eastern Europe the results for Poland were satisfactory; however, asindicated in the interim statement, the results in Russia have beendisappointing and losses of approximately £5m were incurred. During thefinancial year the Polish zloty strengthened significantly against the roubleand this reduced margins, resulting in lower sales with reduced flexibility onpricing and support. A restructuring programme has been undertaken to concentrate our ambitions inEastern Europe, mainly on Poland, and to establish quickly a profitable level ofactivity. In addition to our withdrawal from Russia our liquids and creamsfactory in Warsaw has also been closed. Sales and profits in the Greek unit were marginally up on the previous year. AfricaIn naira, sales and operating profits in Nigeria have increased by 22%.During the year our Nigerian activities have been split into various businessunits 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 nowprogressing. During the year certain properties have been sold giving rise to aprofit of £3m. This property disposal and reinvestment programme will continueover the next few years. Throughout the year the naira remained steady against the dollar. Marginssuffered in the first half from the increased cost of raw materials caused bythe weakness of the dollar against sterling and high oil prices. However, priceincreases and cost saving initiatives led to improved margins in the secondhalf. The high oil prices have resulted in major increases in Governmentrevenues which have generally been used to build reserves. The debt forgivenessprogramme of $18 billion, which has recently been agreed with the Paris Club ofcreditors, should result in increases in expenditure, particularly oninfrastructure projects. Turnover and profitability in Ghana and Kenya were largely in line withexpectations. AsiaSales growth was restricted in the region although profitability continued toincrease, particularly in Australia, where the margin improvement programme isimpacting significantly. The translation impact from the strength of sterlingresulted in a £9m reduction in reported turnover and £1m in profits. Trading in Indonesia, Thailand and Malaysia was competitive, limiting priceincreases, despite oil based cost increases to raw materials and packaging. Australia continues to contribute significantly to the Group and in May 2005expanded its brand portfolio with the acquisition of the Trix detergent brand. With the continuing losses in the Chinese unit, a decision was made to disposeof the business and this was completed in February 2005, giving rise to anexceptional loss of £3.4m. PZ CUSSONS PLC Major ProjectsIn Nigeria we have invested in a plan to expand the capacities of the detergentfactory 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 jointventure with the Irish company Glanbia Plc to invest $20m in a milk factory inNigeria. The factory should be fully operational later in 2005 and will have thecapacity for sales in excess of £50m per annum. The powdered milk plant is nowin production and a new brand - Nunu - has been launched. The evaporated milkplant will be in production in the Autumn. We are now investigating furtheropportunities to expand our nutritional foods business in Nigeria based on milkingredients. In Indonesia we have continued to invest in factory capacity and have recentlypurchased a new plot of land to enable us to build new factories as we furtherexpand our product and brand ranges. Plans are now being finalised to build afactory to expand our Cussons Baby range. Nutritional foods are also beingresearched. In the UK, in the last three years, we have purchased the Original Source andCharles Worthington brands which we regard as having considerable potential. BrandsWith the recent acquisition of the Original Source and Charles Worthingtonbrands, 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 andCharles Worthington - throughout all our existing units and to investigatepotential in new markets such as the USA where Charles Worthington products arealready known. These brands represent approximately 50% of our global business and have fiveyear growth targets in excess of 10% per annum. PeopleA long term people development programme has been launched throughout all units,with a clear objective to improve the quality of our management resource bothfrom within and by external recruitment. The programme will identify and give career planning opportunities toindividuals who display Group values and have the ability and potential toprogress further. The programme is set in the context of our commitment to establishing a workingenvironment based on a transparent meritocracy and involving excellent localpeople in the future of their units, reducing our dependency on expatriatemanagement. Supply chainAs part of the Group margin improvement programme, a comprehensive review of thesupply chain has been undertaken which is now resulting in certainrestructuring. In particular, it has been decided to build a new bar soapproduction factory in Thailand which, together with the existing Indonesianplant, 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 barsoap plant will be closed. Output from the Nottingham factory represents about17% of our total UK consumer business. Plans relating to the closure of theAustralian plant were announced last year. The current weakness in the dollar and the impact of high oil prices on keypackaging materials has restricted improvement in margins over the last fewmonths, but our target remains to increase operating margins in the years ahead. CommunicationsThere has been considerable investment in systems development in recent years,with all units basing their financial, distribution and supply chain processeson one system, MfgPro. Communication technology has recently become available that covers allgeographic areas of our business, including Africa, enabling more reliable voiceand data transfer. In January 2005 a contract was agreed with Equant (part of France Telecom) toestablish 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 growthinitiatives. InvestmentsThe 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 andreleased provisions, leaving £2.8m of unrealised surplus at 31st May 2005. Exceptional itemsDuring the year our China and Russia businesses were closed incurringexceptional costs of £3.4m and £1.7m respectively. In addition, a provision of £4.9m has been made to cover committed costs inrelation to the closure of the Nottingham soap factory. Realisations from thesale 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. DividendThe board is recommending a dividend increase of 10.2% for the year with aproposed final dividend of 26.60p (2004 - 23.95p) per share for a total of35.25p (2004 - 32.00p). Post balance sheet eventFollowing approval at an extraordinary general meeting of the company held on28th June 2005, the share capital of the company has been restructured by theconversion of the 'A' non-voting shares into ordinary shares and the repaymentand cancellation of the preference shares. Following approval of the High Court,this restructuring is now complete. International Accounting StandardsThe Group will adopt International Accounting Standards in the year to 31st May2006. It is anticipated that the adoption of these standards will have anegative impact on results although this is not expected to be significant.Further details will be provided in the Annual Report and Accounts. OutlookPZ Cussons has a solid foundation for growth over the next few years and theGroup's focus continues on improving margins. The balance sheet remains strong, giving adequate funds to finance opportunitiesfor growth, particularly in Nigeria, where the relatively stable politicalsituation and the strength of the economy, with high oil prices and natural gascoming on stream, give reasons for optimism. The debt forgiveness of $18 billionrecently announced by the Paris Club of creditors may prove very important toNigeria. 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 ofintangible fixed assets - - - - 5,943 5,943Profit on disposal oftangible 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 ordinaryactivities beforetaxation 1 58,587 (4,699) 53,888 58,787 1,202 59,989Taxation on profit onordinary activities (17,968) (616) (18,584) (19,477) 1,259 (18,218)________________________________________________________________________________________________________Profit on ordinaryactivities after taxation 40,619 (5,315) 35,304 39,310 2,461 41,771Equity 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 38,279Preference dividends (770) - (770) (770) - (770)________________________________________________________________________________________________________Profit attributableto ordinary capital 33,568 (5,315) 28,253 34,506 3,003 37,509Ordinary 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 ordinaryshare 83.35p (13.20)p 70.15p 85.87p 7.48p 93.35p Diluted earnings perordinary 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 assetsIntangible assets 45,287 9,728 - -Tangible assets 139,304 146,657 - -Investments:Subsidiary companies - - 120,061 90,266Interests 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 assetsStocks 128,923 112,586 - -Debtors falling due withinone year 72,323 65,703 36,840 46,739Debtors falling due after oneyear 3,900 5,568 975 1,170Investments 67,000 80,339 26,880 42,883Cash at bank and in hand 14,845 13,088 - -________________________________________________________________________________ 286,991 277,284 64,695 90,792Creditors - amounts fallingdue 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 currentliabilities 361,885 332,937 110,538 120,639Creditors - amounts fallingdue after one year (17,982) (15,891) (9,127) (7,156)Provisions for liabilitiesand charges (16,094) (11,193) (349) (76)________________________________________________________________________________Net assets 327,809 305,853 101,062 113,407________________________________________________________________________________ Capital and reservesEquity ordinary share capital 4,073 4,073 4,073 4,073Non-equity preference sharecapital 7,898 7,898 7,898 7,898________________________________________________________________________________Total called up share capital 11,971 11,971 11,971 11,971Reserves attributable to equityinterests:Capital redemption reserve 671 671 671 671Revaluation reserve 40,249 41,732 - -Profit and loss account 234,645 214,140 89,557 101,735Other reserve (1,137) (970) (1,137) (970)________________________________________________________________________________Total shareholders' funds 286,399 267,544 101,062 113,407Equity 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 andfinancing (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 3,896Cash 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) 15,644Currency retranslation 645 (2,575)Borrowings acquired with subsidiary (962) -________________________________________________________________________________Movement in net funds in the period (11,222) 13,069Opening 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 14,845Overdrafts (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 50,818Other current assetinvestments 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 38,279Currency 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 originEurope 213,036 201,855 21,219 24,681Africa 159,367 144,175 20,840 19,325Asia 107,715 111,887 11,881 10,088_______________________________________________________________________________________ 480,118 457,917 53,940 54,094Investment income 5,311 6,561Interest payable (664) (1,868)_______________________________________________________________________________________ 58,587 58,787Exceptional items (note 2) (4,699) 1,202_______________________________________________________________________________________ 53,888 59,989_______________________________________________________________________________________ During the year the accounting policy for the treatment of sales discounts andrebates has been amended. Discounts and rebates have been accounted for as areduction in revenue, having previously been treated as a selling anddistribution cost. This accounting treatment is consistent with FRS 5 -Application Note G (issued November 2003) and in the directors' opinion morefairly 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 summarisedin the following table and are explained in the narrative below: Profit before Retained taxation Taxation ProfitExceptional 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) 3,208Loss 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 operationsDuring the year, a decision was taken to close the soap manufacturing factory inNottingham and transfer the production to PZ Cussons Thailand. The charge of£4,905,000 comprises provisions for redundancy and other associatedrestructuring costs. (ii) Restructuring of Polish operationsDuring the year a restructuring programme was undertaken in Poland to rationalisethe Group's Eastern European operations. This involved our withdrawal fromRussia and a decision to close the liquids and creams factory in Warsawresulting in exceptional costs totalling £1,737,000. (iii) Sale of UK propertiesDuring the year, the sales of both our Bury warehouse and UK head office werecompleted resulting in exceptional profits totalling £5,295,000. (iv) Disposal of China businessWith the continuing losses in the Chinese operating unit a decision was made todispose 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 ineither year. 4 AGM and dividend The board is recommending a final dividend of 26.60p per share which, togetherwith the interim dividend of 8.65p gives a total distribution of 35.25p, anincrease of 10.2% over the total of 32.00p last year.The date of the annual general meeting has been fixed for Monday 26th September2005 and dividend warrants in respect of the proposed final dividend, subject toshareholders' approval, will be posted on the 28th September 2005 to members onthe 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 yearended 31st May 2005 which have been approved by the board of directors and whichcarry an unqualified audit report. The 2004 results are an abridged version ofthe statutory accounts for the year ended 31st May 2004 which carry anunqualified audit report and which have been filed with the Registrar ofCompanies. Neither accounts contain a statement in respect of s.237(2) or (3) ofthe Companies Act 1985. Enquiries 2nd August 2005 PZ Cussons Plc0161 491 8000 Graham Calder(Between 9.00 am and 5.15 pm) Finance Director Weber Shandwick Square Mile0207 067 0700 Terry Garrett/ John Moriarty This information is provided by RNS The company news service from the London Stock Exchange