Pz Cussons Regulatory News (PZC)

8 Feb 2005 07:00

PZ CUSSONS PLC08 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 OVERVIEWPROFITABILITY IN THE SIX MONTHS TO 30TH NOVEMBER WAS RESTRICTED BY THE TRADINGDIFFICULTIES IN RUSSIA. OTHER UNITS HAVE PERFORMED LARGELY TO PLAN, DESPITE THEWEAK DOLLAR AND THE HIGH COST OF OIL RELATED MATERIALS.THE LAST FIVE YEARS HAVE SEEN SIGNIFICANT CHANGE WITHIN THE PZ CUSSONS GROUP BYIMPROVING MARGINS AND GENERATING CASH. DURING THIS PERIOD WE HAVE INVESTED £38MIN OUR SHARE BUY BACK PROGRAMME TO ENHANCE SHAREHOLDER RETURN AND ALSO INSIGNIFICANT EXPENDITURE IN GROWTH INITIATIVES TO ENABLE THE GROUP TO REALISE ITSFULL POTENTIAL. GROWTH INITIATIVESIn 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 theIrish company Glanbia Plc to invest $20m in a milk factory in Nigeria. Thefactory should be fully operational by the summer of 2005 and will have thecapacity for sales in excess of £50m per annum. 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, we have also recently purchased the largely UK based brands ofOriginal Source and Charles Worthington which we consider have internationalpotential. Both of these brands have performed up to expectations to date andare considered to have the potential to grow profitably in the USA and in anumber of our existing units.The foundations for significant growth have, therefore, now been firmlyestablished and the following has been actioned with a view to our realising thefull potential of the initiatives. 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 givecareer planning opportunities to individuals who display Group values and havethe ability and potential to progress further. The programme is set in thecontext of our commitment to establishing a working environment based on atransparent meritocracy and involving excellent local people in the future oftheir units, reducing our dependency on expatriate management. BrandsWith the recent acquisition of the Original Source and Charles Worthingtonbrands a new subsidiary has been established - PZ Cussons Brands International -to have responsibility for and to give impetus to the development of our keybrands throughout all our existing units, and to investigate potential in newmarkets, such as the USA where Charles Worthington products are alreadyestablished. Brands International is a mixed discipline team with representationfrom within our major units and will have specific control over our ImperialLeather, Cussons Baby, Carex, Morning Fresh, Original Source and CharlesWorthington brands. This represents approximately 50% of our global business andhas five year growth targets in excess of 10% per annum. 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 to provide the majority of the UK and Australianmarket soap needs together with the existing Indonesian plant. The new factoryshould be in full production by 2007 when the UK Nottingham bar soap plant willbe closed. Output from the Nottingham factory represents about 17% of our totalUK consumer business. Plans relating to the Australian plant were announced lastyear.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 availablecovering all areas of our business including Africa, to enable more reliablevoice and 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 the three majorinitiatives 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 REVIEWSA decision has now been made to dispose of our Chinese unit, which has been inloss for some years, despite considerable efforts to establish a profitabledistribution network. We will retain a presence in China to assist with both ourgroup purchasing initiative and also our rapidly growing Nigerian white goodsbusiness in partnership with Haier.The exceptional costs anticipated in disposing of the Chinese unit are expectedto be offset by exceptional property disposal gains in the UK. These will arisefrom the anticipated sale and leaseback of our head office and the profit on thesale of our Bury warehouse in the first half resulting from the decision tooutsource UK distribution.In Eastern Europe the results for Poland for the first half year have beensatisfactory; however, in Russia, the new distribution arrangements announcedlast year have not proved to be as successful as intended, largely because ofthe fall in the value of the rouble against the zloty later in 2004. This hasreduced margins significantly and also led to lower sales with reducedflexibility on our pricing policies and has resulted in losses in Russia of £3min the first half. Action is now being taken to reduce the focus on Russia andconcentrate our ambitions in Eastern Europe mainly on Poland. We are undertakingan exercise to restructure the Eastern European business so as to quicklyestablish a profitable level of activity; however losses are expected tocontinue at a similar level in the second half year. EuropeIn the UK, the key brands of Imperial Leather, Morning Fresh, Carex and OriginalSource performed well with the launch of the Carex bathroom range performingnotably strongly. However, increases in raw material prices (including packagingmaterials) particularly those which are oil based, are impacting on margins.Sales of the new Charles Worthington products have been in line with plan atabout £9m in the UK for the five months from 1st July 2004 when the company wasacquired. Agreement has now been finalised to maintain brand exclusivity withBoots in the UK.As described above the poor performance in Russia has impacted significantly onthe results in Eastern Europe. In Poland itself, although remaining a verycompetitive market, sales and operating margins have largely been in line withplan 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 thefirst 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. AfricaTurnover in Nigeria in naira is 17% up on the previous year, with therefrigerator factory performing particularly strongly. Margins have, however,suffered from the increased cost of raw materials caused by the weak dollar andthe high oil prices. The high oil prices have resulted in a major increase inGovernment revenues, however generally these have been used to build reservesand it is only now that that there are indications of increases in Governmentexpenditure. Margins are now improving and are expected to improve further inthe second half.Turnover and profitability in Ghana, Kenya and Cameroun have improved. AsiaAlthough sales growth was restricted in the region, overall profitabilitycontinued to increase on last year, particularly in Australia, where the marginimprovement programme is impacting significantly.Trading in Indonesia, Thailand and Malaysia was competitive with restrictions onsales price increases, despite oil based cost increases to raw and packagingmaterials.The continuing losses in China have, as already explained, resulted in thedecision to dispose of the business. DIVIDENDSAn 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 16,630Dividends: 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_______________________________________________________________________________ INVESTMENTSThe 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 releasedprovisions, leaving £3.5m of unrealised surplus at 30th November 2004. PURCHASE OF OWN SHARESThe company has made no further purchases of its own shares in the six months to30th November 2004. DIRECTORSDavid Whitewood, Group Sourcing Director, will retire from the company on 31stMay 2005. David will be succeeded by John Pantelireis, currently Supply ChainDevelopment Director of PZ Cussons International Ltd, who will join the Board asSupply Chain Director with effect from 1st June 2005. OUTLOOKThere are indications of general margin improvements overall in the second half;however, as explained, results will be limited by further operating losses inRussia.The actions being taken as described above, together with the elimination oflosses in Russia and China, give the Group further opportunities for profitimprovement in the future. Reflecting this we have increased the dividend by7.5%.The balance sheet remains strong, giving the Group adequate funds to financeplanned opportunities for growth and to have the flexibility to purchase its ownshares. 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 beforeexceptional items 22,923 26,215 54,094Operating exceptional items - - (4,741)_______________________________________________________________________________Operating profit after exceptional items 22,923 26,215 49,353Profit on disposal of intangible fixed assets - - 5,943Profit on disposal of tangible fixed assets 1,611 - -Net investment income / interestpayable 1,678 1,038 4,693_______________________________________________________________________________Profit before taxation 26,212 27,253 59,989Taxation 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 41,771Equity minority interests (858) (1,101) (3,492)_______________________________________________________________________________Profit attributable to members of the company 16,630 17,204 38,279Dividends (3,891) (3,633) (13,642)_______________________________________________________________________________Profit for the period retained 12,739 13,571 24,637_______________________________________________________________________________ Basic earnings per ordinary and'A' ordinary shareof 10pAfter exceptional items 40.34p 41.72p 93.35pBefore 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 assetsIntangible assets 39,025 9,994 9,728 Goodwill - 906 -Negative goodwill - (2,192) -_______________________________________________________________________________ - (1,286) - Tangible assets 147,688 139,414 146,657Interests in joint ventures: _____________________________________ Share of gross assets 8,848 - 1,708 Share of gross liabilities (8,989) - (1,689) _____________________________________ Share of net assets (141) - 19Other Investments 555 624 576 _____________________________________ 414 624 595_______________________________________________________________________________ 187,127 148,746 156,980_______________________________________________________________________________ Current assetsStocks 116,352 114,869 112,586Debtors due within one year 82,472 66,864 65,703Debtors due after one year 6,204 5,781 5,568Investments 52,552 72,526 80,339Cash at bank and in hand 14,867 9,458 13,088_______________________________________________________________________________ 272,447 269,498 277,284Creditors (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 350,021 317,614 332,937Creditors (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 reservesEquity ordinary share capital 4,073 4,073 4,073Non-equity preference share capital 7,898 7,898 7,898_______________________________________________________________________________Total called up share capital 11,971 11,971 11,971Reserves attributable to equityinterests 270,348 241,099 255,573_______________________________________________________________________________Total shareholders' funds 282,319 253,070 267,544Equity 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 52,336Returns on investments andservicing of finance 3,257 (1,109) 965Taxation (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 15,644Management 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 tomovement in net fundsIncrease / (decrease) in cash in the period 5,090 (1,512) 3,896Cash 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 15,644Currency retranslation (135) (638) (2,575)_______________________________________________________________________________Movement in net funds in the period (25,264) 1,588 13,069Opening net funds 85,176 72,107 72,107_______________________________________________________________________________Closing net funds 59,912 73,695 85,176_______________________________________________________________________________ Reconciliation of operating profit tooperating cash flowsOperating profit 22,923 26,215 49,353Amortisation of goodwill and other intangible assets - 228 448Depreciation and adjustments ondisposals 7,836 9,363 15,480Provisions 1,085 401 (2,074)Stocks (5,229) (2,517) (4,587)Debtors (13,883) (9,753) (10,114)Creditors 11,693 2,352 218Add back charge for shares purchased for ESOT - - 731Impairment 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 14,867Overdrafts (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) 35,888Other 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 38,279Currency retranslation 2,365 (11,552) (20,085)Surplus on revaluation - - 12,702_______________________________________________________________________________Total recognised gains and lossesfor 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 30,896Dividends (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 16,284Opening 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 PlcGraham Calder, Finance Director 0161 491 8000 Weber Shandwick Square MileTerry Garrett / Rachel Taylor 0207 067 0700 This information is provided by RNS The company news service from the London Stock Exchange