- Margins pressured by cost inflation
- Full year 2023 outlook and long-term ambition unchanged
- Depreciation of Nigerian naira a worry for investors
Shares in consumer goods business PZ Cussons (PZC) plunged 6.2% to 200.75p despite sold first half results from the Carex hand sanitiser and Imperial Leather soap maker, showing continued healthy like-for-like sales growth.
While the Manchester-based hygiene, baby and beauty brands company reiterated full year 2023 pre-tax profit guidance, investors were unnerved by the risk to earnings from ‘significant’ macro-economic uncertainty, including the ongoing depreciation of the Nigerian naira.
MARGIN PRESSURE
Results for the half to 3 December 2022 revealed group sales up 18.8% to £336.9 million and like-for-like sales growth of 6.1% thanks to price rises and product mix improvements.
Despite having to hike prices during a cost-of-living crisis, PZ Cussons insisted volume declines to date have been ‘limited’, while the bulk of its ‘Must Win Brands’, Carex, Sanctuary Spa, Original Source and St.Tropez among them, are in ‘good growth’.
Although pre-tax profits rose 7.8% to a better than expected £34.5 million in the half, there was some disappointment as PZ Cussons held the dividend flat at 2.67p and posted modest operating profit growth, up a meagre 0.9% to £33.2 million.
This reflected the ongoing margin squeeze from high cost inflation, though PZ Cussons expects a stronger operating margin performance in the second half 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’.
With PZ Cussons’ full year outlook and long-term ambition unchanged, Shore Capital is sticking with its full year pre-tax profit forecast of £65.7 million.
WHAT DID THE CEO SAY?
From a geographic perspective, Africa proved the star performer with sales ahead by more than 30% to £133.2 million, while sales were up 21% to £102.2 million in Asia Pacific, with Australia outperforming Indonesia.
One source of disappointment was Europe and Americas, where like-for-like sales sank 6% due to post-covid normalisation for Carex, strong comparatives for the beauty brands and an 8% decline in the UK washing and bathing category.
PZ Cussons’ CEO Jonathan Myers commented: ‘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.’
He added: ‘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.’
