Consumer goods giant PZ Cussons (PZC) warns first half operating profit is expected to plunge by 10%, as reduced margins in its African and European businesses crimp profitability.

This news sees the shares marked down 5.8% to 308.7p, although second half brand initiatives should help the Manchester-headquartered soaps-to-beauty products maintain flat full year profits.

In a mixed half year trading update, the company behind Imperial Leather soap, Morning Fresh dishwashing liquid and the St. Tropez tanning brand says sales for the six months to 30 November were slightly higher year-on-year, performance underpinned by ‘a robust and innovative product pipeline’.

PZ Cussons - Face of St Tropez - Greta Jiminez

IN A LATHER

The disappointing news is that first half operating profits will be down year on year at PZ Cussons, which also owns Australian baby food brand Rafferty’s Garden and organic yoghurts-to-granolas name five:AIM.

Strong profitability in Asia, driven by positive showings in Australia and Indonesia, is being ‘offset by reduced margins in some business units in Europe and in particular Africa as a result of the economic environment and competitive trading conditions.’

PZ Cussons - Being by Sanctuary - body wash

CHALLENGED MARKETS

PZ Cussons’s African business has been impacted by weaker demand in Nigeria, notably in electricals and bulk milk, caused by the devaluation of the Naira.

The populous African nation is currently engulfed in its worst financial crisis in decades with a slump in oil revenues hurting the currency and the public purse.

In the UK, consumers are ‘shopping cautiously’, as inflation outstrips wage growth and consumers fret over the economic outlook.

PZ Cussons - DEC 2017INNOVATION PIPELINE

‘Performance in these business units is expected to improve in the second half as a result of new product launches and distribution expansion, together with the usual seasonal uplift in Nigeria,’ assures PZ Cussons, adding ‘the strength of the group's brand portfolio and innovation pipeline continues to ensure that the market shares of our products remain strong in all markets.’

‘Whilst tough trading conditions are expected to continue for the full year with the consumer under pressure in all markets, brand initiatives planned for the second half are expected to deliver a full year outturn broadly in line with the prior year.'

THE ANALYSTS’ REACTION

Numis Securities maintains its ‘hold’ rating on PZ Cussons, but trims its price target from 340p to 325p. ‘In order to reflect slightly softer trading in the first half of 2018 we have reduced our full year adjusted pre-tax profit (PBT) forecasts from £103.5m to £100.1m’, says analyst Damian McNeela, though it is worth noting he forecasts 10% PBT growth to £109.9m for the year to May 2019.

Investec Securities’ Nicola Mallard is sticking with her ‘buy’ rating, albeit her price target reduces modestly from 406p to 400p. Mallard writes: ‘In all regions, the group’s market shares remain resilient and it is well placed for when the economic climate improves from this low point.'

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Issue Date: 14 Dec 2017