8 February 2023

2023 INTERIM RESULTS

for the half year ended 3 December 2022

Continued profitable like for like revenue growth

FY23 outlook reiterated despite the challenging macro environment

Jonathan Myers, Chief Executive Officer, said: "Despite the continued challenging macro environment, we have delivered another quarter of like for like revenue growth. Our first half performance has been in line with expectations and we are reiterating our full year outlook. This is thanks to work we have done to make PZ Cussons a more resilient business and our focus on building stronger brands. For example, in the UK, our new brand Cussons Creations is serving cost-conscious shoppers and the re-launched Sanctuary Spa is for consumers looking to treat themselves at home with an everyday indulgence. Overall, while there remains more to do in our transformation and near-term headwinds to navigate in some of our markets, we are confident about the opportunities ahead of us. We are working to build a higher growth, higher margin, simpler and more sustainable business."

See page 9 for definitions of key terms and pages 10 to 12 for the reconciliation between Alternative Performance Measures and Statutory Results.

Numbers are shown based on continuing operations, unless otherwise stated. With the exception of LFL revenue growth, % changes are shown at actual FX rates.

Unless otherwise stated H1 FY23 refers to the 6 months ended 3 December 2022 and H1 FY22 refers to the 6 months ended 27 November 2021.

Revenue growth of 18.8% includes approximately three percentage points contribution due to an additional six reporting days in the period, compared to H1 FY22.

Group Summary

·    Like for like ('LFL') revenue growth of 6.1%, driven by price/mix improvements, with limited volume declines

·    Must Win Brands ('MWBs') LFL revenue increased 2.2% (6.7% growth excluding Carex), with the large majority of the brands in good growth

·   Reported revenue grew 18.8%, driven by the contribution of the Childs Farm acquisition, favourable FX and the impact of additional reporting days in the period

·    Adjusted operating profit margin decline of 170bps in line with expectations, driven primarily by adverse geographic mix, with cost mitigation and Revenue Growth Management largely offsetting underlying inflation. On track for margin improvement in H2

·   Adjusted EPS declined 8.5% as growth in adjusted profit before tax of 7.8% was more than offset by a higher tax charge and the increase in minority interests as a result of the improved profitability in Africa; on a statutory basis, EPS increased 39.5% to 5.90p

·    Balance sheet remains strong with a new £325 million credit facility agreed, incorporating ESG-linked KPIs

·    Interim dividend of 2.67p, unchanged from H1 FY22

·    Continued progress against 'Building brands for life' strategy, including:

o  A doubling of investment in MWBs compared to H1 FY20, including recent marketing campaigns for Original Source, Sanctuary Spa and Portfolio Brand Imperial Leather's first TV campaign in seven years

o Ongoing simplification of our Nigerian operations, with over £30 million of cumulative proceeds now achieved from the sale of residential properties and an improved ERP infrastructure

o Childs Farm continues to perform well with the ongoing integration into our own operations and new international listings recently secured

o Further growth in sustainability-led packaging, including 200% growth in Sanctuary Spa refill sales which also offer better value to the consumer

o  Incremental investment to prepare selected MWBs for entries into new markets and adjacencies

·   FY23 outlook and long-term ambition is unchanged from that provided at the FY22 Results in September 2022

For further information please contact:

Investors            

Simon Whittington - IR and Corporate Development Director      +44 (0) 77 1137 2928

Media

Headland PZCussons@headlandconsultancy.com                             +44 (0) 20 3805 4822

Susanna Voyle, Stephen Malthouse, Charlie Twigg

Investor and Analyst conference call

PZ Cussons' management will host an audio webcast for analysts and institutional investors at 9.00am GMT on 8 February 2023. The webcast is available at the link below and will also be available via our corporate website, www.pzcussons.com.

https://www.investis-live.com/pzcussons/63bff148aba36a0c0018e275/fewq

Notes to Editors

About PZ Cussons

PZ Cussons is a FTSE250 listed consumer goods business, headquartered in Manchester, UK. We employ nearly 3,000 people across our operations in Europe, North America, Asia-Pacific and Africa. Since our founding in 1884, we have been creating products to delight, care for and nourish consumers. Across our core categories of Hygiene, Baby and Beauty, our trusted and well-loved brands include Carex, Childs Farm, Cussons Baby, Imperial Leather, Morning Fresh, Original Source, Premier, Sanctuary Spa and St.Tropez. Sustainability and the wellbeing of our employees and communities everywhere are at the heart of our business model and strategy, and captured by our purpose: For everyone, for life, for good.

Cautionary note regarding forward-looking statements

This announcement contains certain forward-looking statements relating to expected or anticipated results, performance or events. Such statements are subject to normal risks associated with the uncertainties in our business, supply chain and consumer demand along with risks associated with macro-economic, political and social factors in the markets in which we operate. Whilst we believe that the expectations reflected herein are reasonable based on the information we have as at the date of this announcement, actual outcomes may vary significantly owing to factors outside the control of the PZ Cussons Group, such as cost of materials or demand for our products, or within our control such as our investment decisions, allocation of resources or changes to our plans or strategy. The PZ Cussons Group expressly disclaims any obligation to revise forward-looking statements made in this or other announcements to reflect changes in our expectations or circumstances. No reliance may be placed on the forward-looking statements contained within this announcement.

Group Review

Introduction from our Chief Executive Officer

Our performance in the first half of the year has continued to be impacted by a challenging macro environment, with ongoing high cost inflation and reduced consumer confidence. We have nevertheless delivered a robust financial performance with continued LFL revenue growth and our expectations for the full year are unchanged. Our teams have been working hard to ensure we continue to offer the best possible value for consumers and I would like to thank each of them for their efforts and support.

We continue to make good progress against our strategy. We have refocused on the consumer, raising the bar on how we approach marketing and innovation. We are investing more to build stronger brands, with a particular focus on our MWBs where Brand Investment in the first half of the year is double that of H1 FY20 - just prior to the launch of the strategy. Finally, we are continuing to remove the complexities that have historically constrained our growth.

There is undoubtedly more to do, but significant strategic progress has been made over the last two years to address our legacy issues and ensure the business is well positioned to navigate the near-term headwinds as we continue to move from Turnaround to Transformation.

Our strategic progress: Building brands for life. Today and for future generations.

In the first half of the year, we have continued to make good headway, focusing on the core categories of Hygiene, Baby and Beauty in our four priority markets of the UK, Australia, Indonesia and Nigeria.

Build Brands

Our primary strategic focus is on building memorable, trusted and well-loved brands. In the UK, Sanctuary Spa, one of our MWBs, was relaunched in the period with new packaging and product ranges, such as shower oils and scrubs, demonstrating the value offered to consumers seeking to maintain their everyday indulgences in the face of the cost of living crisis. Supported by a significant increase in Brand Investment, results have been positive, with household penetration increasing by a third and the brand is well placed to deliver a third consecutive year of strong revenue growth.

Elsewhere, our continued focus on investing behind MWBs in Nigeria has resulted in Brand Investment double the level of two years ago, in part funded by a more than 20% reduction in Portfolio Brand investment as we shift our resources behind our strategic priorities. This is driving significant improvement in financial and operational performance in Africa with LFL revenue growth of 15.6% and a further improved margin.

Serve Consumers

We need to win wherever the shopper shops and we are working to ensure we have the right route to market strategy for all our brands, whether through increasing our presence within the discounter channel or strengthening relationships with the larger grocers. We are also reaching a wider range of consumers through innovation, with the development of Cussons Creations providing an everyday value offering for the cost-conscious shopper.

Building on the earlier success of the Rafferty's Garden online offering where market share continues to be ahead of traditional routes to market, the Australian team has recently launched a Direct-to-Consumer website for Childs Farm, following the move to integrate previous third party distribution into our own operations. Elsewhere, St.Tropez had its best 'Holiday Week' ever in North America driven by targeted promotional programmes and strong online activity through closer relationships with Amazon. In the UK, Sanctuary Spa sales grew over 70% as part of Amazon's Prime Day event.

Reduce Complexity

Nigeria continues to be a major part of our focus to reduce complexity across the Group. We are simplifying our operations with further residential property sales, generating £13.5 million of proceeds in the period, bringing cumulative proceeds to over £30 million. We see further opportunities to unlock additional value over time and have also re-engineered our ERP system (SAP) to improve financial controls and drive process efficiencies.

We have continued to evolve our supply chain footprint. In the period we relocated our procurement function to improve operational performance and made the strategic decision to outsource product fragrance development and supply. Over the medium term we will continue to reconfigure our supply chain into a simplified, lean and agile function to support future profitable growth.

Develop People

Our people strategy remains a critical enabler of our business, building a high engagement, high performance culture. In October we hosted our first 'Future Ready Summit' which brought together senior leaders from across the Group to shape our business priorities and plans. The Workday HR system will bring considerable benefits to employees and managers whilst driving efficiencies in process and insight to drive our talent agenda.

Recognising the cost of living challenges many of our employees are facing, we have been working hard to support wherever we can, including vouchers in Indonesia, one-off payments in Nigeria and Ghana and appreciation days in the UK and Australia.

Grow Sustainably

Our investment in sustainability is driven by wanting to be at the forefront of responding to evolving consumer behaviour and ensuring that our products serve them well. In the UK, we have reformulated Imperial Leather bottles and Sanctuary Spa jars to include 30% post-consumer recycled resin whilst also launching an Original Source 'bottle for life' made of aluminium and offering better value to consumers. Sanctuary Spa refills have grown nearly 200% over the past year, reflecting not only consumers' desire to purchase more sustainably, but also the better value given the lower levels of plastic usage. Demonstrating our commitment to embed our new sustainability framework "Better For All" into all parts of our business, we agreed a new and innovative £325 million credit facility which incorporates ESG-linked KPIs.

FY23 Outlook

As previously guided, we expect a stronger operating margin performance in the second half of the year driven by improved trends in our Europe and Americas business, more benign cost inflation and the full impact of price increases implemented part way through the first half. We remain mindful of significant macro-economic uncertainty, including the continued depreciation of the Nigerian naira, but expect to report FY23 adjusted profit before tax in line with current market estimates.

We now expect an effective tax rate ('ETR') on adjusted profit before tax for FY23 of 26-27% (22-24% previously) primarily as a result of the geographic mix of profits. We expect a net interest charge for FY23 of approximately £2 million (versus previous expectations of £4 million). 

Our long-term ambition of LFL revenue growth of mid-single digits and adjusted operating profit margins in the mid-teens is unchanged.

Financial Review

Overview of Group financial performance

We have delivered a robust financial performance, in line with our expectations, despite the impact of inflationary pressures and the softening of the wider macro-economic environment and consumer confidence. Revenue increased 18.8% reflecting LFL revenue growth of 6.1%, the positive contribution of the Childs Farm acquisition and favourable FX movements. An additional six reporting days in the period added approximately three percentage points to revenue growth and is excluded from the LFL calculation. LFL revenue was driven mainly by price/mix improvements of 11.4%. Volumes declined 5.4%, of which nearly three percentage points were attributable to our Nigerian Electricals business, where we are intentionally driving price and margin, rather than volume, and to Carex where category demand has continued to normalise post-Covid. Excluding the impact of foreign exchange movements, revenue growth was 8.1%.

The 170bps decline in adjusted operating profit margin was primarily driven by adverse geographic revenue mix as we saw declines in the higher gross margin brands of Carex and St.Tropez, but very strong growth in Africa and Australia where our brands typically have lower margins. Cost inflation remained high in the period, although this is expected to moderate in the second half of the year, based on the current market outlook. We have increased our Brand Investment during the period and have also been investing in future white space opportunities such as expansion into new geographies and category adjacencies. Adjusted EPS declined by 8.5% as a result of the reduction in adjusted operating margin, together with a higher tax rate and the impact of a higher minority interest charge associated with the strength of our Nigerian business. On a statutory basis, EPS increased 39.5% to 5.90p.

Our balance sheet remains strong, with adjusted net debt of £35.7 million. Adjusted net debt has increased since the year end as adverse FX movements, loans we elected to advance to PZ Wilmar Limited, one of our joint ventures in Nigeria, and the payment of the final FY22 dividend have more than offset free cash flow of £4.2 million (H1 FY22: £20.3 million) and proceeds from the disposal of residential properties in Nigeria. The Board has approved an unchanged interim dividend of 2.67p (H1 FY22: 2.67p).

Performance by geography

Europe and the Americas

Revenue declined 6.0% on a LFL basis, primarily reflecting the continued post-Covid normalisation of Carex, a strong comparable period for our Beauty brands and against the context of an 8.3% decline in the UK washing and bathing category in the period. The reported revenue increase of 4.6% includes the benefit of the Childs Farm acquisition, which completed in March 2022. Childs Farm continues to perform well, benefiting from recently agreed new international listings and we will soon launch the first new product development under our ownership.

The UK hand hygiene category declined during the period, driven largely by a 50% reduction in the hand sanitiser category as concerns related to Covid have continued to soften. Despite a reduction in revenue during the period, Carex remains approximately 20% higher than pre-Covid levels and has continued to see strong performance of refills.

Original Source grew as a result of successful marketing during the period, helping it to become the third largest shower brand in the UK, up from fifth previously. After a number of years of revenue decline, Imperial Leather was relaunched with its first TV campaign in seven years, reconnecting with the brand's heritage and appeal to consumers as they seek an everyday indulgence. To enable Imperial Leather's premiumisation, we launched our new Portfolio Brand Cussons Creations in June 2022 for the more cost-conscious consumer, recognising the importance of the discounter retail channel in recent years. The response to this approach has been positive, allowing us to both improve profitability and better serve consumers. The two brands combined have seen higher sales than the previous Imperial Leather offering.

Our Beauty business saw a decline on last year's particularly strong performance from St.Tropez which benefited from the Ashley Graham campaign and a strong post-Covid rebound. Revenue nevertheless remains significantly higher than two years ago. Sanctuary Spa grew strongly following its 'Self Care Counts' re-staging and marketing campaign, with UK household penetration increasing by a third compared to two years ago. It grew particularly well on key trading occasions, seeing double and triple-digit growth during Prime Day and Black Friday respectively and continues to expand its shower range such as oils and scrubs.

Adjusted operating profit margin declined to 9.5%, from 20.6%. This was driven by pressures from cost inflation and the reduction in consumer confidence in the UK, the revenue decline in Carex and St.Tropez, as well as incremental investment in the business to strengthen our portfolio and drive future growth. We expect margins to improve significantly in H2 due to improved trends in Carex and St.Tropez, the full period effect of price increases implemented during H1 and more favourable cost phasing. On a statutory basis, operating profit declined by £3.9 million.

Asia Pacific

Revenue increased 21.1% as a result of strong LFL growth and favourable FX. On a LFL basis, revenue grew 7.5% driven by very strong growth in ANZ as a result of successful Revenue Growth Management activity and share gains, offset by a softer performance in Indonesia.

Cussons Baby Indonesia declined slightly in the first half due to the softening of category growth during the period given the increasing levels of consumer cost inflation. Competition in certain categories also remain challenging and our focus continues to be growing the higher margin baby toiletry sub-categories such as oils, lotions and creams.

In our Hygiene category, Morning Fresh continued to perform well, maintaining market share despite pricing initiatives. Revenue was up strongly driven by marketing campaigns in Q1 and Q2 and the growth of refills with our Bottle for Life offering. Radiant gained market share, driven by new product development.

Rafferty's Garden continued its strong performance, growing price and volume ahead of the category, and with a further acceleration in online sales. Rafferty's Garden remains the clear market leader, representing almost a third of the baby food category in Australia.

Imperial Leather performed very strongly driven by our increased focus on expanding our brands outside of their primary markets.

Adjusted operating margin grew by 220bps as strong revenue growth and margin initiatives more than offset cost inflation. Statutory operating profit grew by £2.3 million.

Africa

LFL revenue growth of 15.6% was driven by further distribution gains and improvements in price/mix, with multiple price increases during the financial year. All major brands, including the Portfolio Brands Stella and Canoe, reported double digit LFL revenue growth. Volumes declined only slightly, demonstrating the strength of our brands and improved distribution. On a reported basis, revenue grew by 30.3% driven by favourable FX movements.

In our Hygiene business, Premier saw very strong growth as it continues to lead its category, while we also relaunched our Flamingo value soap bar with a new proposition and packaging, targeting the more cost-conscious consumer. Morning Fresh maintained its market-leading position in the dishwash category in Nigeria despite significant price increases. Imperial Leather in Kenya grew strongly, benefiting from new product launches.

Cussons Baby grew strongly, with growth in both price/mix and volume.

Revenue in our Electricals business continued to grow strongly, due to a series of price increases to offset cost inflation and contributed revenue of £52.7 million in the period. Gross margins improved as we continue to prioritise improving the profitability of the business over gaining volume share.

Adjusted operating margin grew by 370bps. Against a backdrop of very strong cost inflation, this was achieved through successive price increases, improving efficiencies, as well as a focus on driving the higher margin parts of our portfolio. On a statutory basis, operating profit increased by £17.4 million reflecting the profit on further property disposals in Nigeria.

Other financial items

Operating profit

Adjusted operating profit for the Group was £33.2 million, which compares to £32.9 million in the prior period. Adjusted operating profit margins declined by 170bps to 9.9%. This was driven primarily by a 270bps reduction in the gross profit margin which reflects an adverse geographic mix of profits. Overheads reduced by 50bps as we continue to seek opportunities for productivity gains. Brand Investment grew versus the prior year in absolute terms but decreased by 30bps as a percentage of revenue. PZ Wilmar, our Palm Oil joint venture, reduced the Group's operating margin by 30bps as its profit declined following the very strong performance of H1 FY22. Finally, we recognised 50bps of FX and other gains. Operating profit increased 60.7% to £39.2 million.

Adjusting items

Adjusting items in the period totalled net income of £6.0 million before tax. This included a net income of £10.9 million from our Nigeria simplification project mainly relating to £11.7 million from the profit on the disposal of residential properties. Other adjusting items mainly related to costs associated with ongoing transformation programmes and included £3.1 million for the Finance Transformation programme and £1.1 million for the Supply Chain Transformation programme. See note 4 for further details on adjusting items.

After accounting for these adjusting items, operating profit for the Group was £39.2 million which was £14.8 million higher than the prior period.

Net finance income/(costs)

Net finance income in the period was £1.3 million, compared to a cost of £0.9 million in the prior period. This was driven by several factors, including higher income on cash deposits, the impact of higher discount rates on pension interest income and accounting treatment for the RCF refinancing.

Profit before tax was £40.5 million, £17.0 million higher than the prior period. Adjusted profit before tax was £34.5 million which was £2.5 million higher than the prior period.

Taxation

The tax charge in the period for continuing operations was £9.2 million compared to £3.6 million in the prior period. The effective tax rate ('ETR') on adjusted profit before tax increased to 26.6% (21.6% in the prior period) primarily due to the change in the geographic mix of profits across the Group.

Profit after tax

Profit for the period from continuing operations was £31.3 million, which compared to £19.9 million in the prior period.  Basic earnings per share was 5.90p, compared to 4.23p in the prior period. Adjusted basic earnings per share was 5.16p, which compares to 5.64p in the prior period. This 8.5% reduction is a result of the decline in adjusted operating margin, together with a higher tax rate and the impact of a higher minority interest charge associated with the growth in our Nigerian business.

The loss from discontinued operations in the prior period was £0.7 million and related to settlement of legal claims relating to Minerva, a Greek subsidiary which was disposed of in September 2019.

Profit for the period was £31.3 million compared to £19.2 million in the prior period (which included the £0.7 million loss from discontinued operations described above).

Balance sheet and cash flow

Adjusted net debt as at 3 December 2022 was £35.7 million which compared to £9.8 million at 31 May 2022. This increase is due to cash outflows related to the payment of the final FY22 dividend and loans we elected to advance to PZ Wilmar Limited, one of our joint ventures in Nigeria, which more than offset the proceeds from the disposal of residential properties in Nigeria and cash generated from operations.

Total free cash flow was £4.2 million which included a net working capital outflow as a result of seasonality of trading which increases stock and receivables, and a decision made to secure raw materials in Nigeria ahead of future price increases.

Net assets were £430.8 million which compared to £449.3 million at 31 May 2022. The reduction was mainly due to the remeasurement of pension schemes, currency exchange differences on translation of foreign operations and the FY22 final dividend partially offset by the profit for the year.

During the period, the Group agreed a new £325 million committed credit facility incorporating both a term loan and revolving credit facility ('RCF') structure, with maturity dates of up to November 2028. This replaced the previous £325 million RCF facility which was due to expire in November 2023. The facility, which was agreed on attractive commercial terms, includes a pricing structure linked to the Group's new sustainability framework.

Dividend

The Board has approved an interim dividend maintained in line with that of previous years of 2.67p. The dividend will be paid on 6 April 2023 to shareholders on the register at the close of business on 10 March 2023.

Glossary