Last checked at 26 Jan 2010 07:00
26 January 2010
INTERIM ANNOUNCEMENT OF RESULTS
FOR THE HALF YEAR TO 30 NOVEMBER 2009
PZ Cussons Plc, a leading consumer products group in personal care and household products, announces its interim results for the six months ended 30 November 2009.
| Results (before exceptional items1) | Half-year to 30 November 2009 | Half-year to 30 November 2008 (restated3) | Change |
| Revenue | £369.9m | £367.2m | +0.7% |
| Operating profit | £44.9m | £39.0m | +15.1% |
| Profit before taxation | £44.7m | £36.9m | +21.1% |
| Adjusted basic earnings per share | 6.74p | 5.25p | +28.4% |
| Statutory results | |||
| Operating profit | £44.9m | £36.9m | +21.7% |
| Profit before taxation | £44.7m | £34.8m | +28.4% |
| Basic earnings per share | 6.74p | 4.90p | +37.6% |
| Interim dividend per share | 1.930p | 1.185p | +62.9% |
| Net funds / (debt)2 | £25.5m | (£40.8m) |
1 Exceptional items are detailed in note 4.
2 Net funds / (debt), above and hereafter, are defined as cash, short-term deposits, current asset investments less borrowings.
3 Refer to note 5.
HIGHLIGHTS
Group
Africa
Operating profit in Africa increased despite currency impact and a short-term liquidity squeeze in Nigeria which affected revenue and profitability in the second quarter
Nutrition joint venture returned to profitability and new UHT factory commissioned
£39m investment programme in supply chain facilities in Nigeria on track for completion later in the calendar year
Asia
Increase in Asia operating profit following strong performance in Australia, Indonesia and The Middle East
Europe
Significant increase in Europe operating profits driven in particular by strong performance in the UK and Poland
UK brand portfolio benefiting from continued new product development from the integrated site at Agecroft, Manchester
The Sanctuary delivered year on year growth which continued post period end, with strong performance in Christmas gifts
Commenting today, Anthony Green (Chairman) said:
"The Group has delivered a strong performance in the first half despite the economic environment remaining fragile. Investment in both our brand portfolio and our supply chain facilities has enabled us to deliver continued profitable growth in the short term as well as laying the foundations for longer term growth in all three regions in which we operate.
We continue our focus on people and our talent management programme is ensuring that we have both the number and calibre of people needed to deliver our ambitious growth plans.
Importantly, our balance sheet remains strong with continued cash generation. We are in the final year of our major capital investment programme at the end of which our supply chain facilities in our key markets of UK and Nigeria will have been upgraded to world class standards.
Overall performance since the period end has been in line with management expectations. We remain cautiously optimistic for the full year outturn and well placed to pursue further investment opportunities."
Press Enquiries
PZ Cussons Brandon Leigh (Finance Director)
Hogarth John Olsen, Sarah MacLeod
On 26 and 27 January c/o Hogarth on 020 7357 9477. Thereafter to Brandon Leigh on 0161 491 8000.
An analysts' presentation will be held on 26 January 2010 at 9.30am at the offices of Panmure Gordon, Moorgate Hall, 155 Moorgate, London, EC2M 6XB.
Overview
PZ Cussons Plc is pleased to report that profit before tax and exceptional items rose 21.1% to £44.7 million (30 November 2008: £36.9 million) on revenue up 0.7% to £369.9 million (30 November 2008: £367.2 million). After exceptional items, reported profit before tax increased by 28.4% to £44.7 million (30 November 2008: £34.8 million). There were no exceptional items in the six month period to 30 November 2009 (30 November 2008: charge of £2.1 million). Basic earnings per share were 6.74p (30 November 2008: 4.90p). Adjusted for exceptional items, basic earnings per share rose 28.4% to 6.74p (30 November 2008: 5.25p).
As at 30 November 2009 the Group had net funds of £25.5 million (30 November 2008: net debt of £40.8 million).
The Board is recommending a dividend increase of 62.9% for the period with an interim dividend of 1.930p per share (30 November 2008: 1.185p) to be paid on 1 April 2010 to shareholders on the register at the close of business on 26 February 2010. This represents both an underlying increase of 10% versus the prior period and a rebalancing of the interim / final payout ratio in line with normal practice.
Financial performance - overview
The Group has delivered a strong performance in the first half despite continued global economic uncertainty. Performance in Europe and Asia has been particularly strong, driven by consistent execution of brand strategy in market supported by a strong pipeline of brand renovation and innovation.
In Africa, a tightening of banking controls in Nigeria led to a temporary lack of liquidity in the market in the second quarter which affected sales, particularly of goods in the higher value electrical goods category. In addition, a weakening of the Naira has resulted in an adverse currency impact. Despite this liquidity and currency impact, and with the Nutricima joint venture returning to profitability, operating profits in Africa increased versus the same period last year.
Overall exchange rate impact for the Group in the period resulted in a reduction in revenue and profitability of circa £12m and £1.1m respectively. Revenue, period on period, was flat, due to both the adverse currency impact and the impact in Nigeria of the liquidity squeeze.
During the period, in addition to delivery of operating profits in absolute terms, internal focus has also been put on improving percentage margins.
Financial Position - overview
The Group's balance sheet remains healthy and, following a return to a net funds position of £23.2m at the end of the last financial year, a net funds position has been maintained at this period end of £25.5m. Cash generated from operations was strong in the period at £51.5m (2008: £37.3m) with a continued focus on minimising working capital levels. Cash generation continues to fund the capital investment programme which has entered the last year of major organic spend with the majority of final outlay on the main Nigeria project to be paid this financial year.
Major projects
In Nigeria, Project Unity, which is the £39 million investment in the manufacturing and broader supply chain facilities, is on track for completion later in the calendar year. So far the following stages of the project have been completed: relocation and upgrade of personal care manufacturing operations from the Ilupeju site to the Ikorodu site, installation of new soap finishing and packing equipment at the factory in Aba and, during the period, the commissioning of the new national distribution centre at Ikorodu. The final part of the investment is the major upgrade of the detergent production equipment also at the Ikorodu site.
Regional reviews
Performance by region
| Revenue (£m) | Operating profit before exceptional items (£m) | |||||||
| 2009 | 2008 | 2009 | 2008 | |||||
| Africa | 141.2 | 158.3 | 13.8 | 13.3 | ||||
| Asia | 80.0 | 63.1 | 6.1 | 4.9 | ||||
| Europe | 148.7 | 145.8 | 25.0 | 20.8 | ||||
| Total | 369.9 | 367.2 | 44.9 | 39.0 | ||||
Africa
In Nigeria, the political environment remains stable albeit fragile following the recent long absence of the President who has been undergoing medical treatment overseas. The elections in Nigeria are currently scheduled for spring 2011 and the Group currently expects business growth to continue relatively unaffected throughout the process as it has done through previous periods of political uncertainty. Economically, the Nigerian economy experienced a liquidity squeeze in the second quarter following a strengthening of controls in the banking sector. These reforms are viewed as positive for the long term economic health of the financial system and liquidity is now beginning to return to the market post period end. The weakening of the Naira versus the US dollar has stabilised with oil prices having risen again, and positive GDP growth has continued.
Performance in Nigeria was strong in the first quarter followed by a weaker second quarter. Overall, and with the Nutrition joint venture returning to profitability, this has resulted in operating profits in Nigeria being higher than the comparative period despite the negative currency impact as a result of a 16% weakening of the Naira. The Group's holding in its listed Nigerian subsidiary has been increased further from 64% to 65.3% during the period at a cost of £3.4m.
In Personal Care and Home Care, growth continues to be driven by renovation of the core brands in haircare, skincare, babycare, medicaments and fabric care. In Personal Care, brands performing particularly well are Premier and Joy soaps with sales significantly ahead of the prior period, and in Home Care, Zip white detergent powder and Rex bulk detergent have performed well.
In Electricals, the HPZ joint venture with Haier experienced growth in the first quarter but slowed in the second quarter as a result of the liquidity squeeze. Harefield, the subsidiary incorporated last year to sell products in adjacent categories, has seen continued growth throughout both quarters with sales of fuel powered generators performing particularly well. Overall growth in Harefield has therefore helped to offset lower sales in HPZ.
The Nutrition joint venture returned to profitability in the period following the losses incurred last year as a result of high milk prices. The business has continued to gain momentum with the Nunu brand performing particularly well. The new UHT factory was commissioned at the beginning of the period and initial sales of these products are encouraging.
Ghana and Kenya have continued to perform well with profitability ahead of the same period last year.
Asia
In Australia, revenue and profitability were ahead of the same period last year as a result of good execution of brand strategy in market. In laundry detergents, the Radiant and Duo brands are performing particularly well, and Morning Fresh has further extended its number one position in the dishwashing category.
Revenue and profitability in Indonesia is also ahead of the same period last year due to growth of both the core Cussons Baby range and also the premium Cussons First Years range which was launched last year. As a result, the number one position of the Cussons Baby brand has been extended further. During the period, Carex was launched into the Indonesian market to capitalise on the current heightened awareness of hand hygiene.
Growth in the region was also contributed by the Middle East with revenue and profitability ahead of the prior period.
Europe
In the UK, performance has been strong despite a challenging trade environment with high levels of competitive promotional activity. The integrated site at Agecroft is ensuring continued speed to market of a high number of new products with our market share of the washing and bathing category increasing further. Imperial Leather continues to be the largest brand in the UK portfolio with emphasis in the period on ensuring delivery of great products at the right price in store. Carex sales are significantly ahead of the prior period with consumer awareness of hand hygiene remaining high following the swine flu outbreak. Carex support activity has included nationwide poster campaigns as well as a 'Hands Up For Hygiene' campaign run in schools and online. The Charles Worthington haircare brand has maintained its number two position in the competitive professional haircare category and has launched in the period an innovative new range of high performance styling products called 'Front Row'. The Original Source brand has experienced strong growth in the period with a growing loyal consumer base supported in particular by association with high performance sports events. Production of Original Source is currently being brought in-house at Agecroft with the addition of a new fifth line dedicated to produce this specialised range.
The Sanctuary, purchased in January 2008, has continued to perform well, with sales of gifts in the important Christmas trading period post period end ahead of last year. The brand range was extended in the period with new body care, skincare and home products including a number of more premium products. The spa at Covent Garden has also performed well with visitor numbers close to the capacity of 64,000 per year. Two smaller high street spas, in Richmond and Cambridge, are being developed as part of a 'City Spa' concept to extend the reach of the spa and the brand to consumers.
Revenue and profitability in Poland are ahead of the same period last year with good growth of 'E' laundry powder and fabric conditioner and 'Luksja' bar soap, liquid soap and shower gels. UK innovation on personal wash has successfully been transferred to a number of the Polish products. Export sales in particular have been ahead of the prior period due to favourable exchange rates. Towards the end of the period Carex has also been launched into the Polish market in both handwash and hand gel formats.
In Greece, whilst the olive oil market has been competitive in the first half, excellent progress has been made in growing the cheese and butter businesses acquired last year in order to expand the Minerva brand into higher margin categories.
Taxation
The effective tax rate before exceptional items was 29.3% (30 November 2008: 29.0%).
Group
Richard Harvey joined the board on 1 January 2010 as Non Executive Director and Chairman elect. Richard will take over as Non Executive Chairman on 1 July 2010 when Anthony Green, Executive Chairman, retires from the board. Graham Calder, Deputy Chairman, will retire from the board on 31 March 2010.
The Group's new Head Office at Manchester Business Park by Manchester Airport will open in April and will provide an innovative setting for the future.
Principal risks and uncertainties facing the Group
Our principal risks and uncertainties for the remaining six months of the financial year are explained in more detail in note 17 and remain as stated on pages 24 and 25 of our 2009 Annual Report which is available on our website at www.pzcussons.com.
Outlook
The outlook for the full year remains positive with strong performance in Europe and Asia expected to offset any continued impact in Nigeria of adverse exchange rates and the tightening of liquidity in the market.
The completion of the Group's major capital investment programme will lay the foundations for further profitable growth in all our regions.
The balance sheet remains strong with a net funds position and a continued focus on minimising working capital levels.
Overall performance since the period end has been in line with expectations and we remain cautiously optimistic for the full year outturn.
CONSOLIDATED BALANCE SHEET
| Unaudited | Unaudited (restated) | Audited (restated) | ||
| 30 November 2009 | 30 November 2008 | 31 May 2009 | ||
| Note | £m | £m | £m | |
| Assets | ||||
| Non-current assets | ||||
| Goodwill and other intangible assets | 7 | 160.4 | 151.4 | 157.6 |
| Property, plant and equipment | 7 | 211.8 | 215.2 | 200.8 |
| Other investments | 0.6 | 0.8 | 0.6 | |
| Net investment in joint venture | 19.2 | 28.0 | 19.0 | |
| Receivables | 1.9 | 0.8 | 1.6 | |
| Retirement benefit surplus | 13 | 27.2 | 15.8 | 20.6 |
|
| 421.1 | 412.0 | 400.2 | |
| Current assets | ||||
| Inventories | 171.9 | 219.8 | 154.6 | |
| Trade and other receivables | 129.5 | 141.0 | 113.7 | |
| Other investments | 0.3 | 0.3 | 0.3 | |
| Cash and short-term deposits | 83.8 | 41.4 | 84.2 | |
| Current taxation receivable | 1.4 | 3.0 | 0.8 | |
|
| 386.9 | 405.5 | 353.6 | |
| Total assets | 808.0 | 817.5 | 753.8 | |
| Equity | ||||
| Ordinary share capital | 4.3 | 4.3 | 4.3 | |
| Capital redemption reserve | 0.7 | 0.7 | 0.7 | |
| Currency translation reserve | 28.9 | 45.6 | 20.4 | |
| Hedging reserve | (0.2) | (1.1) | 0.3 | |
| Retained earnings | 360.3 | 335.1 | 364.2 | |
| Equity attributable to equity holders of the company | 394.0 | 384.6 | 389.9 | |
| Equity minority interest | 55.8 | 73.8 | 59.9 | |
| Total equity | 449.8 | 458.4 | 449.8 | |
| Liabilities | ||||
| Non-current liabilities | ||||
| Borrowings | 37.4 | 52.4 | 44.9 | |
| Other liabilities | 1.1 | 2.1 | 1.0 | |
| Deferred tax liabilities | 41.5 | 42.6 | 47.2 | |
| Retirement benefit obligations | 13 | 55.2 | 42.0 | 29.6 |
|
| 135.2 | 139.1 | 122.7 | |
| Current liabilities | ||||
| Borrowings | 21.2 | 30.1 | 16.4 | |
| Trade and other payables | 171.0 | 173.2 | 140.8 | |
| Current income tax liabilities | 27.2 | 15.5 | 20.3 | |
| Provisions for other liabilities and charges | 3.6 | 1.2 | 3.8 | |
|
| 223.0 | 220.0 | 181.3 | |
| Total liabilities | 358.2 | 359.1 | 304.0 | |
| Total equity and liabilities | 808.0 | 817.5 | 753.8 | |
CONSOLIDATED INCOME STATEMENT
| | Unaudited | Unaudited (restated) | Audited (restated) | |||||
| | | Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | ||||
| | | Total | Before exceptional items | Exceptional items (note 4) | Total | Before exceptional items | Exceptional items (note 4) | Total |
| | Note | £m | £m | £m | £m | £m | £m | £m |
| Continuing operations | | | | | | | | |
| Revenue | 3 | 369.9 | 367.2 | - | 367.2 | 781.8 | - | 781.8 |
| Cost of sales | | (216.8) | (227.9) | - | (227.9) | (486.7) | (3.3) | (490.0) |
| | | | | | | | | |
| Gross profit | | 153.1 | 139.3 | - | 139.3 | 295.1 | (3.3) | 291.8 |
| Selling and distribution costs | | (64.5) | (62.8) | - | (62.8) | (123.3) | - | (123.3) |
| Administrative expenses | | (44.5) | (36.2) | (2.1) | (38.3) | (77.1) | (1.1) | (78.2) |
| Share of results of joint venture | | 0.8 | (1.3) | - | (1.3) | (4.1) | - | (4.1) |
| Operating profit | 3 | 44.9 | 39.0 | (2.1) | 36.9 | 90.6 | (4.4) | 86.2 |
| | | | | | | | | |
| Finance income | | 0.9 | 1.3 | - | 1.3 | 3.7 | - | 3.7 |
| Finance costs | | (1.1) | (3.4) | - | (3.4) | (5.5) | - | (5.5) |
| Net finance costs | 6 | (0.2) | (2.1) | - | (2.1) | (1.8) | - | (1.8) |
| | | | | | | | | |
| Profit before taxation | | 44.7 | 36.9 | (2.1) | 34.8 | 88.8 | (4.4) | 84.4 |
| Taxation | 8 | (13.1) | (10.7) | 0.6 | (10.1) | (25.2) | 1.2 | (24.0) |
| | | | | | | | | |
| Profit for the period | | 31.6 | 26.2 | (1.5) | 24.7 | 63.6 | (3.2) | 60.4 |
| | | | | | | | | |
| Attributable to: | | | | | | | | |
| Equity holders of the company | | 28.8 | 22.4 | (1.5) | 20.9 | 52.8 | (3.2) | 49.6 |
| Minority interests | | 2.8 | 3.8 | - | 3.8 | 10.8 | - | 10.8 |
| | | 31.6 | 26.2 | (1.5) | 24.7 | 63.6 | (3.2) | 60.4 |
| | | | | | | | | |
| Basic EPS (p) | 10 | 6.74 | | | 4.90 | | | 11.64 |
| Diluted EPS (p) | 10 | 6.67 | | | 4.88 | | | 11.56 |
| | | | | | | | | |
| Adjusted basic EPS (p) | 10 | 6.74 | | | 5.25 | | | 12.39 |
| Adjusted diluted EPS (p) | 10 | 6.67 | | | 5.23 | | | 12.31 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| £m | £m | £m | |
| Profit for the period | 31.6 | 24.7 | 60.4 |
| Other comprehensive income | |||
| Actuarial (losses) / gains on defined benefit pension schemes | (19.1) | 4.0 | 19.1 |
| Exchange differences on translation of foreign operations | 6.5 | 46.5 | (3.8) |
| Cash flow hedges - fair value (loss) / gain in period | (0.7) | (1.5) | 0.6 |
| Taxation on items taken directly to equity | 5.5 | (1.2) | (5.6) |
| Other comprehensive (expense) / income for the period net of tax | (7.8) | 47.8 | 10.3 |
| Total comprehensive income for the period | 23.8 | 72.5 | 70.7 |
| Attributable to: | |||
| Equity holders of the company | 23.0 | 50.8 | 61.1 |
| Minority interests | 0.8 | 21.7 | 9.6 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Attributable to owners of the company | ||||||||
| Currency | Capital | |||||||
| Share | translation | redemption | Retained | Hedging | Minority | |||
| capital | reserve | reserve | earnings | reserve | interests | Total | ||
| £m | £m | £m | £m | £m | £m | £m | ||
| At 1 June 2008 | 4.3 | 23.0 | 0.7 | 320.7 | - | 57.2 | 405.9 | |
| Profit for the period | - | - | - | 20.9 | - | 3.8 | 24.7 | |
| Actuarial gains on defined benefit pension schemes | - | - | - | 4.0 | - | - | 4.0 | |
| Currency translation differences | - | 22.6 | - | 6.0 | - | 17.9 | 46.5 | |
| Cash flow hedges - fair value losses in period | - | - | - | - | (1.5) | - | (1.5) | |
| Taxation on items taken directly to equity | - | - | - | (1.6) | 0.4 | - | (1.2) | |
| Total comprehensive income/(expense) for the period | - | 22.6 | - | 29.3 | (1.1) | 21.7 | 72.5 | |
| Transactions with owners: | ||||||||
| Ordinary dividends | - | - | - | (15.5) | - | - | (15.5) | |
| Share based payments charge | - | - | - | 0.6 | - | - | 0.6 | |
| Minority interest dividend paid | - | - | - | - | - | (5.1) | (5.1) | |
| At 30 November 2008 | 4.3 | 45.6 | 0.7 | 335.1 | (1.1) | 73.8 | 458.4 | |
| At 1 June 2008 | 4.3 | 23.0 | 0.7 | 320.7 | - | 57.2 | 405.9 | |
| Profit for the period | - | - | - | 49.6 | - | 10.8 | 60.4 | |
| Actuarial gains on defined benefit pension schemes | - | - | - | 19.1 | - | - | 19.1 | |
| Currency translation differences | - | (2.6) | - | - | - | (1.2) | (3.8) | |
| Cash flow hedges - fair value gains in year | - | - | - | - | 0.6 | - | 0.6 | |
| Taxation on items taken directly to equity | - | - | - | (5.3) | (0.3) | - | (5.6) | |
| Total comprehensive income/(expense) for the period | - | (2.6) | - | 63.4 | 0.3 | 9.6 | 70.7 | |
| Transactions with owners: | ||||||||
| Ordinary dividends | - | - | - | (20.5) | - | - | (20.5) | |
| Acquisition of shares for ESOT | - | - | - | (0.7) | - | - | (0.7) | |
| Share based payments charge | - | - | - | 1.3 | - | - | 1.3 | |
| Acquisition of minority interest | - | - | - | - | - | (3.7) | (3.7) | |
| Minority interest dividend paid | - | - | - | - | - | (3.2) | (3.2) | |
| At 31 May 2009 | 4.3 | 20.4 | 0.7 | 364.2 | 0.3 | 59.9 | 449.8 | |
| At 1 June 2009 | 4.3 | 20.4 | 0.7 | 364.2 | 0.3 | 59.9 | 449.8 | |
| Profit for the period | - | - | - | 28.8 | - | 2.8 | 31.6 | |
| Actuarial losses on defined benefit pension schemes | - | - | - | (19.1) | - | - | (19.1) | |
| Currency translation differences | - | 8.5 | - | - | - | (2.0) | 6.5 | |
| Cash flow hedges - fair value losses in period | - | - | - | - | (0.7) | - | (0.7) | |
| Taxation on items taken directly to equity | - | - | - | 5.3 | 0.2 | - | 5.5 | |
| Total comprehensive income/(expense) for the period | - | 8.5 | - | 15.0 | (0.5) | 0.8 | 23.8 | |
| Transactions with owners: | ||||||||
| Ordinary dividends | - | - | - | (17.5) | - | - | (17.5) | |
| Acquisition of shares for ESOT | - | - | - | (2.5) | - | - | (2.5) | |
| Share based payments charge | - | - | - | 1.1 | - | - | 1.1 | |
| Acquisition of minority interest | - | - | - | - | - | (1.8) | (1.8) | |
| Minority interest dividend paid | - | - | - | - | - | (3.1) | (3.1) | |
| At 30 November 2009 | 4.3 | 28.9 | 0.7 | 360.3 | (0.2) | 55.8 | 449.8 | |
CONSOLIDATED STATEMENT OF CASH FLOWS
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| £m | £m | £m | |
| Operating activities | |||
| Cash generated from operations (note 11) | 51.5 | 37.3 | 145.2 |
| Taxation | (6.2) | (5.9) | (16.7) |
| Net cash flow from operating activities | 45.3 | 31.4 | 128.5 |
| Cash flows from investing activities | |||
| Investment income received (note 6) | 0.9 | 1.3 | 3.7 |
| Purchase of property, plant and equipment | (18.1) | (22.9) | (46.0) |
| Proceeds on sale of property, plant and equipment | 0.3 | 0.8 | 4.1 |
| Proceeds on sale of intangible assets | - | 4.3 | 4.3 |
| Acquisition of intangible assets | - | - | (3.6) |
| Acquisition of minority interest (note 14) | (3.4) | - | (5.2) |
| Loans granted to joint ventures | - | (0.5) | (0.5) |
| Acquisition of subsidiary (note 14) | (0.8) | - | - |
| Net cash flow from investing activities | (21.1) | (17.0) | (43.2) |
| Cash flows from financing activities | |||
| Interest paid (note 6) | (1.1) | (3.4) | (5.5) |
| Dividends paid to minority interests | (3.0) | (2.0) | (2.3) |
| Purchase of shares for Employee Share Option Trust | (2.5) | - | (0.7) |
| Dividends paid to company shareholders (note 9) | (17.5) | (15.5) | (20.5) |
| Net decrease in borrowings | (7.5) | (4.6) | (10.5) |
| Net cash flow from financing activities | (31.6) | (25.5) | (39.5) |
| Net (decrease) / increase in cash and cash equivalents | (7.4) | (11.1) | 45.8 |
| Cash and cash equivalents at the beginning of the period (note 12) | 82.8 | 38.1 | 38.1 |
| Effect of foreign exchange rates (note 12) | 2.2 | (2.0) | (1.1) |
| Cash and cash equivalents at the end of the period (note 12) | 77.6 | 25.0 | 82.8 |
NOTES
1. Basis of preparation
These condensed interim financial statements for the six months ended 30 November 2009, which have been reviewed but not audited, have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union (EU). The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 May 2009 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU, including International Accounting Standards (IAS) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).
The interim financial statements for the period ended 30 November 2009 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.
The financial information set out in this statement relating to the year ended 31 May 2009 does not constitute statutory accounts for that period. Full audited accounts of the Group in respect of that financial period were approved by the Board of Directors on 28 July 2009 and have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 of the Companies Act 2006.
2. Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 May 2009, as described in those annual financial statements, with the exception of the change in the accounting treatment for revenue arising on the sale of Nutricima Ltd joint venture products as explained in note 5.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The following new standards, amendments to standards and interpretations have been adopted for the financial year ending 31 May 2010:
IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, 'Disclosures about segments of an enterprise and related information'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group has assessed the requirements of IFRS 8 and concluded that no change in segment information is required.
IAS 1 (revised), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. The Group has applied IAS 1 (amended) from 1 June 2009.
IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. The interpretation clarifies the limitations on recognising defined benefit pension surpluses (and the related deferred tax liabilities) in the balance sheet and may also require recognition of an additional liability for any committed future contributions. The Group has applied IFRIC 14 from 1 June 2009.
IAS 23 (amendment) 'Borrowing costs'; IAS 32 (amendment) 'Financial instruments: presentation and consequential amendments to IAS 1 'Presentation of financial statements'; IFRS 2 (amendment) 'Share-based payment transactions'; and IFRIC 13, 'Customer loyalty programmes' also came into effect and were adopted by the Group for the year ending 31 May 2010 but had no impact on the Group financial statements.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year ending 31 May 2010 and have not been early adopted:
IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures' are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. This is applicable to the Group from 1 June 2010. Management is assessing the impact of the new requirements regarding acquisition accounting, consolidation and joint ventures on the Group.
IFRS 9 'Financial instruments: classification and measurement' is effective for accounting periods beginning on or after 1 January 2013. Management are assessing the impact of the new requirements on the Group.
IAS 39 (amendments) 'Eligible hedged items', IFRIC 16 'Hedges of net investment in a foreign operation' and IFRIC 17 'Distributions of non cash assets to owner' are effective for annual periods beginning on or after 1 July 2009. These standards and interpretation changes are either not currently applicable to the Group or will have no material effect.
3. Segmental analysis
The Group has three geographic sectors which are based on the location of customers and they comprise of Africa, Asia and Europe. The Group has three main business sectors, being: toiletries and household products; food and nutrition; and electrical goods.
Geographic segments (unaudited)
| Half-year to 30 November 2009 | Africa £m | Asia £m | Europe £m | Eliminations £m | Total £m |
| Total gross segment revenue | 141.2 | 95.3 | 228.2 | (94.8) | 369.9 |
| Inter segment revenue | - | (15.3) | (79.5) | 94.8 | - |
| Revenue | 141.2 | 80.0 | 148.7 | - | 369.9 |
| Segmental operating profit before share of results of joint venture | 13.0 | 6.1 | 25.0 | - | 44.1 |
| Share of results of joint venture | 0.8 | - | - | - | 0.8 |
| Segmental operating profit | 13.8 | 6.1 | 25.0 | - | 44.9 |
| Half-year to 30 November 2008 (restated) | Africa £m | Asia £m | Europe £m | Eliminations £m | Total £m |
| Total gross segment revenue | 158.3 | 81.4 | 266.2 | (138.7) | 367.2 |
| Inter segment revenue | - | (18.3) | (120.4) | 138.7 | - |
| Revenue | 158.3 | 63.1 | 145.8 | - | 367.2 |
| Segmental operating profit before exceptional items and share of results of joint venture | 14.6 | 4.9 | 20.8 | - | 40.3 |
| Share of results of joint venture | (1.3) | - | - | - | (1.3) |
| Segmental operating profit before exceptional items | 13.3 | 4.9 | 20.8 | - | 39.0 |
| Exceptional items (note 4) | - | - | (2.1) | - | (2.1) |
| Segmental operating profit | 13.3 | 4.9 | 18.7 | - | 36.9 |
| Total assets | Africa £m | Asia £m | Europe £m | Tax and cash £m | Total £m |
| 30 November 2009 | 245.7 | 103.1 | 374.0 | 85.2 | 808.0 |
| 30 November 2008 | 297.6 | 99.2 | 376.3 | 44.4 | 817.5 |
| 31 May 2009 | 217.8 | 74.3 | 376.7 | 85.0 | 753.8 |
Business segments
The following table provides an analysis of the Group's revenue by business segment.
| Unaudited | Unaudited (restated) | ||
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | ||
| £m | £m | ||
| Toiletries and household | 286.6 | 281.0 | |
| Food and nutrition | 36.1 | 34.6 | |
| Electrical goods | 45.5 | 49.8 | |
| Distribution fees | 1.7 | 1.8 | |
| Revenue | 369.9 | 367.2 |
4. Exceptional items
Restructuring of UK operations
A significant restructuring of the UK business, associated with the relocation of manufacturing from the previous site, made up of redundancy and other associated restructuring costs resulted in an exceptional charge of £2.1 million in the six months to 30 November 2008 and an exceptional charge of £4.4 million in the year ended 31 May 2009.
5. Prior year adjustment
During the six month period to 30 November 2009 the accounting treatment for the revenue arising from the sale of the Nutricima joint venture products through another Group subsidiary has been changed. In prior periods the sales (and corresponding cost of sales) relating to Nutricima Ltd (the operating entity within the Group's nutritional foods joint venture) products distributed through PZ Cussons Nigeria Plc (a subsidiary of the Group) have been recognised as revenue (and cost of sales) in the Group's income statement. Following a review of the distribution agreement conditions and the respective risks/rewards assumed by the two entities, PZ Cussons Nigeria Plc is deemed to be acting as an agent rather a principal (in accordance with IAS 18). Consequently the Group should only recognise the distribution fee income (received from Nutricima Ltd) and the related distribution costs in the consolidated income statement rather than the gross sales and cost of sales values for the product being distributed. Furthermore, inventory relating to Nutricima products, held for sale by PZ Cussons Nigeria Plc, that had previously been consolidated in the Group's balance sheet is now accounted for as inventory within the joint venture. Importantly, there is no impact on the historic or future profitability or net assets of the Group.
The effect of this change in the half year to 30 November 2008 is to reduce revenue and cost of sales by £28.4 million, increase revenue and selling and distribution costs by £1.8 million, reduce inventories by £7.2 million, reduce amounts owed to joint ventures by £4.5 million and increase the amount due from joint ventures by £2.7 million. The effect of this change in the year to 31 May 2009 is to reduce revenue and cost of sales by £60.1 million, increase revenue and selling and distribution costs by £3.8 million, reduce inventories by £3.7 million, reduce amounts owed to joint ventures by £1.3 million and increase the amount due from joint ventures by £2.4 million.
6. Net finance (costs) / income
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| £m | £m | £m | |
| Net investment gains | 0.1 | - | 0.4 |
| Interest and dividends receivable | 0.8 | 1.3 | 3.3 |
| 0.9 | 1.3 | 3.7 | |
| Interest payable on bank loans and overdrafts | (1.1) | (3.4) | (5.5) |
| (0.2) | (2.1) | (1.8) |
7. Property, plant and equipment and intangible assets
| Property, plant and equipment | Intangible assets | |
| £m | £m | |
| Opening net book amount as at 1 June 2008 | 180.0 | 152.2 |
| Additions | 24.1 | - |
| Disposals | (0.5) | - |
| Depreciation and amortisation | (8.7) | - |
| Currency retranslation | 20.3 | (0.8) |
| Closing net book amount as at 30 November 2008 | 215.2 | 151.4 |
| Opening net book amount as at 1 June 2009 | 200.8 | 157.6 |
| Additions | 18.2 | - |
| Acquisitions (Note 14) | 0.5 | 1.8 |
| Disposals | (0.1) | - |
| Depreciation and amortisation | (9.0) | - |
| Currency retranslation | 1.4 | 1.0 |
| Closing net book amount as at 30 November 2009 | 211.8 | 160.4 |
At 30 November 2009, the Group had entered into commitments for the acquisition of property, plant and equipment amounting to £17.2 million. At 30 November 2008, the Group had entered into capital commitments of £23.9 million.
8. Taxation
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| £m | £m | £m | |
| United Kingdom | 7.1 | 4.2 | 6.8 |
| Overseas | 6.0 | 5.9 | 17.2 |
| 13.1 | 10.1 | 24.0 |
Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate to be used for the year ending 31 May 2010 is 29% (the estimated tax rate for the half-year ending 30 November 2008 was 29%).
9. Dividends
An interim dividend of 1.930p per share for the half-year to 30 November 2009 (30 November 2008: 1.185p) has been declared totalling £8.3 million (30 November 2008: £5.1 million) and is payable on 1 April 2010 to ordinary shareholders on the register on 26 February 2010. This interim dividend has not been recognised in this half yearly report. The proposed final dividend for the year ended 31 May 2009 of 4.085p per share, totalling £17.5 million, was approved by shareholders at the annual general meeting of the company and paid on 7 October 2009.
10. Earnings per share
Basic earnings per share and diluted earnings per share are calculated by dividing profit for the period by the following weighted average number of shares in issue:
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| Basic weighted average (000) | 427,253 | 426,665 | 426,212 |
| Diluted weighted average (000) | 431,686 | 428,699 | 429,064 |
The difference between the basic and diluted weighted average number of shares represents the dilutive effect of the deferred annual share bonus scheme, executive share option schemes and performance share plan. The basic and diluted earnings per share for the period are as follows:
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| Basic earnings per share: | |||
| - Adjusted basic earnings per share | 6.74p | 5.25p | 12.39p |
| - Exceptional items | - | (0.35)p | (0.75)p |
| - Basic earnings per share | 6.74p | 4.90p | 11.64p |
| Diluted earnings per share: | |||
| - Adjusted diluted earnings per share | 6.67p | 5.23p | 12.31p |
| - Exceptional items | - | (0.35)p | (0.75)p |
| - Diluted earnings per share | 6.67p | 4.88p | 11.56p |
11. Reconciliation of profit before taxation to cash generated from operations
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| £m | £m | £m | |
| Profit before taxation | 44.7 | 34.8 | 84.4 |
| Adjustment for finance costs | 0.2 | 2.1 | 1.8 |
| Operating profit | 44.9 | 36.9 | 86.2 |
| Depreciation | 9.0 | 8.7 | 17.5 |
| Loss/(profit) on sale of tangible fixed assets | (0.2) | (0.3) | 1.0 |
| Difference between pension charge and cash contributions | (1.4) | (1.3) | (2.6) |
| Share of result from joint ventures | (0.8) | 1.3 | 4.1 |
| Share based payments | 1.1 | 0.6 | 1.3 |
| Operating cash flows before movements in working capital | 52.6 | 45.9 | 107.5 |
| Movements in working capital: | |||
| Inventories | (16.5) | (29.9) | 7.0 |
| Receivables | (14.9) | (12.7) | (2.0) |
| Payables | 29.4 | 33.3 | 30.7 |
| Provisions | 0.9 | 0.7 | 2.0 |
| Cash generated from operations | 51.5 | 37.3 | 145.2 |
12. Net funds reconciliation
Group net funds comprises the following:
| Audited | Unaudited | Unaudited | Unaudited | Unaudited | |
| 1 June 2009 | Cash flow | Foreign Exchange | Non cash items | 30 November 2009 | |
| £m | £m | £m | £m | £m | |
| Cash at bank and in hand | 38.9 | 1.5 | 1.1 | - | 41.5 |
| Overdrafts | (1.4) | (4.8) | - | - | (6.2) |
| Short term deposits | 45.3 | (4.1) | 1.1 | - | 42.3 |
| Cash and cash equivalents | 82.8 | (7.4) | 2.2 | - | 77.6 |
| Current asset investments | 0.3 | - | - | - | 0.3 |
| Bank loans less than 1 year | (15.0) | 7.5 | - | (7.5) | (15.0) |
| Bank loans greater than 1 year | (44.9) | - | - | 7.5 | (37.4) |
| Net funds | 23.2 | 0.1 | 2.2 | - | 25.5 |
13. Retirement Benefits
The Group operates retirement benefit schemes for most of its UK and overseas subsidiaries. These obligations have been measured in accordance with IAS 19 and are as follows:
| Unaudited | Unaudited | Audited | |
| 30 November 2009 | 30 November 2008 | 31 May 2009 | |
| £m | £m | £m | |
| UK schemes in surplus | 27.2 | 15.8 | 20.6 |
| UK schemes in deficit | (49.1) | (36.9) | (24.9) |
| Overseas schemes | (6.1) | (5.1) | (4.7) |
| (28.0) | (26.2) | (9.0) |
The Group has three main defined benefit schemes which are based and administered in the UK and are now closed to future accrual.
The amounts recognised in the balance sheet in relation to these UK schemes are determined as follows:
| Unaudited | Unaudited | Audited | |
| 30 November 2009 | 30 November 2008 | 31 May 2009 | |
| £m | £m | £m | |
| Present value of scheme liabilities | (250.8) | (210.6) | (196.1) |
| Fair value of scheme assets | 228.9 | 189.5 | 191.8 |
| Retirement benefit deficit | (21.9) | (21.1) | (4.3) |
The key financial assumptions applied in the actuarial review of the pension schemes have been reviewed in the preparation of these interim accounts and amended where appropriate. The principal assumptions made were:
| Unaudited | Unaudited | Audited | |
| Half-year to 30 November 2009 | Half-year to 30 November 2008 | Year to 31 May 2009 | |
| % per annum | % per annum | % per annum | |
| Rate of increase in salaries | 4.40 | 4.00 | 4.50 |
| Rate of increase in retirement benefits in payment | 3.40 | 3.00 | 3.50 |
| Discount rate | 5.50 | 6.00 | 7.00 |
| Inflation assumption | 3.40 | 3.00 | 3.50 |
The last triennial actuarial valuations of the schemes administered in the UK were performed by independent professional actuaries at 1 June 2006.
The movement during the period is as follows:
| Unaudited | |||
| £m | |||
| Retirement benefit deficit as at 1 June 2009 | (4.3) | ||
| Expected return on scheme assets | 6.1 | ||
| Interest cost | (6.8) | ||
| Employer contributions | 2.1 | ||
| Actuarial loss | (19.0) | ||
| Retirement benefit deficit as at 30 November 2009 | (21.9) |
The total income statement charge of £0.7 million has been recognised within administrative expenses.
14. Acquisitions
On 5 November 2009, the Group, through its subsidiary The Sanctuary at Covent Garden Ltd, acquired the entire share capital of Body Experience Ltd, a company registered in the UK whose principal activity is the provision of spa services. The consideration was £0.8 million and provisional goodwill arising on the acquisition was £0.2 million.
Throughout the period from 1 June 2009 to 30 November 2009, the Group has acquired additional share capital of its existing subsidiary PZ Cussons Nigeria Plc, increasing the Group's stake from 64% to 65%. The consideration for these additional shares was £3.4 million and goodwill arising on the acquisition was £1.6 million.
15. Related party transactions
The following related party transactions were entered into by subsidiary companies during the period under the terms of a joint venture agreement with Glanbia Plc.
At 30 November 2009 the outstanding balance receivable from Milk Ventures (UK) Ltd was £23.8 million (31 May 2009: £23.8 million). There were no outstanding balances payable to Milk Ventures (UK) Ltd (31 May 2009: nil).
The Group sourced and then sold fixed assets and raw materials to Nutricima Ltd to the value of £11.0 million (30 November 2008: £26.9 million). At 30 November 2009 the amount outstanding from Nutricima Ltd was £1.1 million (31 May 2009: £8.5 million).
PZ Cussons Nigeria Plc distributed goods on behalf of Nutricima Ltd to the value of £25.5 million (30 November 2008: £28.4 million). The amount outstanding from Nutricima Ltd at 30 November 2009 was £1.9 million (31 May 2009: £2.7 million). All trading balances will be settled in cash.
There were no provisions for doubtful related party receivables at 30 November 2009 (31 May 2009: nil) and no charge to the income statement in respect of doubtful related party receivables (30 November 2008: nil).
16. Seasonality
Certain individual business units have a degree of seasonality with the biggest factors being the weather and Christmas. However, no individual reporting segment is seasonal as a whole and therefore no further analysis is provided.
17. Principal risks and uncertainties
The principal risks affecting the Group and measures taken to reduce these risks are explained in detail on pages 24 and 25 of our 2009 Annual Report which is available on our website at www.pzcussons.com. The risks were categorised as market risk, financial risk and operational risk and are summarised as follows:
Market risks identified are: political and economic stability due to substantial operations in emerging markets; demand risk arising from changes in consumer preferences and the competitive environment in which the Group operates; and raw material risk relating to price and supply fluctuations in raw materials used in production.
The major financial risk identified is foreign currency and treasury risk due to the international nature of the Group.
Operational risks identified are: the ability to retain and recruit the right calibre of people at all levels; and reputational risk as a result of failure to meet safety, social, environmental and ethical standards in all operations and activities.
The Group Risk Committee is responsible for ensuring where possible actions are taken to manage and mitigate the risks identified.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors' confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The current Directors are listed at the end of this announcement.
By order of the Board
Brandon Leigh
Finance Director
26 January 2010
INTERIM REVIEW REPORT TO PZ CUSSONS PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2009, which comprises the Consolidated Balance Sheet, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP Chartered Accountants 26 January 2010Manchester
Directors
Chairman
A J Green
Deputy Chairman
A G Calder
Chief Executive
G A Kanellis
J A Arnold *
C G Davis
R J Harvey * (appointed 1 January 2010)
S J N Heale *
B H Leigh
D W Lewis *
J Pantelireis
J T J Steel *
* Non-executive
Secretary
S P Plant
Registered Office
PZ Cussons House
Bird Hall Lane
Stockport SK3 0XN
Registered number
Company registered number 19457
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Website
www.pzcussons.com