PZ Cussons Plc

Hello and welcome to the PSED Cousins 2023 Interim Results presentation. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please dial into the conference call and press star followed by one on your telephone keypad. I will now hand you over to your host, Jonathan Myers, CEO to begin. Jonathan, please go ahead.

Thank you very much. Good morning, everyone. And thanks for joining the call. Today, Sarah and I will update you on our results for the first half of the year and progress against our strategy. In terms of agenda, I'll start by providing some overall perspectives on the first half and then hand over to Sarah to take you through the group financials and regional performance. After that, I will cover off some of the operational and strategic developments in more detail. And then it will be over to you when we'll be delighted to take your questions. I'm pleased to say that we have continued to make good progress against our strategy in the first half of the year as we continue the move from turnaround to transformation. Starting with our financial performance, we have delivered another half, in fact, our fifth consecutive quarter of profitable like-for-like revenue growth, with the majority of our must-win brands up versus a year ago. While there has undoubtedly been some impact of the volatile and inflationary external conditions across our markets, the strength of our brands and the work we have done over the past few years to make PZ Cussons a stronger and more resilient business mean that we have largely been able to offset the impact through pricing and productivity initiatives. We have been working hard to use the full range of revenue growth management tools so we can avoid simply pushing price increases onto our customers and consumers wherever possible, including using our portfolio to ensure that we are meeting the needs of our consumers through innovation, through the reframing of value, and with the right packed formats and sizes. We said we would continue to invest in our brands, and that is what we have been doing. We have doubled investment behind our must-win brands in the first half of our financial year, compared to levels prior to the launch of our strategy. We have invested in new and improved advertising campaigns, a full restage of Sanctuary Spa, and the relaunch of portfolio brands, with Imperial Leather and Customs Creations helping to broaden our appeal to a wider range of UK consumers. And Child's Farm continues to make good progress, leveraging the strength of the group for new international listings, and we're excited about the imminent launch of the first new product development since we acquired the brand. We are far from finished in addressing our legacy issues, but we have made good progress so far, especially in Nigeria, to drive significant and sustained improvement in financial and operational performance. Despite the challenging external environment, we reiterate our outlook for the full year. We are building a higher growth, higher margin, simpler and more sustainable business, and are confident in our long-term ambition of delivering mid-single-digit revenue growth with a mid-teens margin. I'll be back to talk in more detail about some of these highlights shortly, but first, Sarah will take you through our financial performance in the first half.

Thanks, Jonathan, and good morning, everyone. I'm going to provide a summary of the half one financials, walk you through the key movements year on year at a group level and then by segment and finish with the outlook for the year. We've delivered a robust performance in the first half of this year against the backdrop of continued macroeconomic challenges with inflationary pressures and softer consumer confidence in a number of our markets. With another period of like-for-like revenue growth, profit in line with expectations, and a strong balance sheet, we see a more resilient business emerging, capable of delivering more consistent financial outperformance. So let's take a look at the summary financials. Total revenue is up nearly 19%, reflecting improved underlying performance, a strong contribution from the acquired child's farm business, favourable Forex movements, and an additional six reporting days in the period, contributing around three percentage points to overall revenue growth. Within the 6% like-for-like growth, our must-win brands in aggregate were back into revenue growth, up 2%, and up 7% excluding Carex, ahead of the overall group growth. Operating profit margin was lower, at 9.9%, consistent with the guidance we provided at our full year results in September. Earnings per share was 8.5% lower, as the 8% growth in profit before tax was more than offset by an increased tax charge and an increase in minorities, both due to the continued profitable growth of our Africa business. Net debt remains very low, albeit up a little year on year, and the board has approved a dividend of 2.67 pence, unchanged from last year and the two years prior. Now let's take a look at the revenue performance in more detail. Looking left to right on the chart, you can see that like-for-like revenue growth of 6% was driven by the performances in Asia-Pac and Africa. Both regions are delivering ahead of the expectations we had for them at the start of this financial year. Carex and Saint-Tropez were the main contributors to the decline in Europe and Americas, and Jonathan and I will come on to describe both the drivers and our plans in some detail. Like-for-like volumes were down 5%. Around three percentage points is explained by Carex and our Nigerian electricals business. The decline in Carex reflects the ongoing hand hygiene category normalization post-COVID. In electricals, which clearly sits outside our core categories of hygiene, baby and beauty, we continue to intentionally and successfully take price to drive margin, willing to forego some volume. We therefore see the underlying volume performance somewhat better than the 5% headline decline, And these trends have remained fairly consistent throughout the period. That said, we continue to remain vigilant on evolving price elasticity trends, particularly in our developed markets. Charles Farm added just over £6 million to revenue, while the combination of Forex and the benefit of the additional six reporting days added another £28 million. The Forex benefit represents the general depreciation of Sterling, and in particular versus the Naira, accounting for half the benefit. The Naira was on average around 10% stronger during the first half, although this gain has reversed in recent months as we head into the uncertainty of the political elections. And to help you with your Forex modelling, we've shown in the appendix the split of our revenue by currency along with the prevailing rates in recent reporting periods. The additional six days, which is not dissimilar to a retailer's 53rd week, have not been included in the like-for-like revenue growth number of 6%. And this phasing unwinds in Q4, and so there will be no overall impact for the year as a whole. Turning to margin. As I mentioned, our operating margin declined as we guided it would. 170 basis points lower than the prior year period, down to 9.9%. Gross margin was down 270 basis points. The vast majority of this is explained by adverse geographic mix as our lower margin business in Africa and to a lesser extent, our home care brands in Australia grew faster than our Europe and America's region, which contains our highest margin brands. While we remain encouraged with our overall ability to offset cost inflation through a combination of pricing, revenue growth management and productivity interventions, the phasing of the pricing versus the inflation in a challenging UK market has contributed to the half one margin erosion. The improved second half performance in Europe and Americas, which I will come on to explain, will significantly improve both the geographic mix and the overall group margin performance in half too. Lower overheads contributed 50 basis points to margin, and brand investment, up in absolute terms year on year, grew by less than the rate of revenue growth, leading to further margin progression. Our palm oil joint venture saw its margin decline slightly, lapping a strong prior year performance. Finally, we saw a small forex benefit related to fair value gains on hedges. I'll now give a little more detail on each of our three regional segments. Firstly, Europe and Americas. Although total revenue was up, like-for-like revenue declined 6%, broadly in line with Q1. The first half performance is explained by Carex and Santropay. and we saw good growth across other brands. Overall, margins were down 11 percentage points compared to the comparable period last year. Clearly, this is not where the margin for the business needs to be, but we're confident in the plans we have in place to address this. So let me give a little more colour on what is behind the margin movement and how we think these factors will evolve over the next six to 12 months. There were three drivers of the margin decline. Firstly, the external environment has been more challenging than we anticipated. UK washing and bathing, which is by far the most important category for our Europe and America's region, was down 8% in the period, as consumers have sought to make savings in their personal care routines in the face cost of living challenges. And on top of the inflation the consumer is seeing, we continue to see our own input costs higher year on year. This inflation is in part attributable to the stronger US dollar, which represents a significantly greater proportion of our costs than it does our revenue. And we estimate the impact of the stronger dollar on our Europe and America's cost base to be approximately two percentage points. This will ultimately be covered through pricing, but there's a lag. with price increases implemented partway through the period. Secondly, the revenue of two of our highest margin brands declined. The decline in Carex continues to be a result of the ongoing normalization of consumer behavior post-COVID. We've seen extremely strong share gains in hand sanitizers, but overall the hand hygiene category is down significantly. Taking a step back, however, Carex remains some 20% above pre-pandemic levels, and our market-leading share position will stand us in good stead when the category momentum returns. Santra Pay declined as we lacked the double-digit growth we posted this time last year on the back of the successful Ashley Graham activations and the distribution gains in the US with both Ulta and Sephora. Finally, we make no apology for investing for growth. We're seeing strong returns from investing behind our must-win brands. And although it is easy to cut spend to meet short-term profit expectations, maintaining investment is the right thing to do. And Jonathan will talk a little more about recent successes. We're also making targeted investments behind growth into white spaces, particularly in our beauty business. The margin decline also incorporates the consolidation of Charles Farm, which represents around 100 basis points of the total. Compared with the first half, we expect the second half revenue and margin performance in the Europe and Americas region to be markedly better. Although the consumer outlook does remain uncertain, and as noted, we will continue to invest behind long-term growth and our strategic transformation, The other down elevators in our margin bridge should reverse in half two. We expect Carex and Saint-Tropez trends to improve significantly. Even if there is further normalization of the hand hygiene category in half two, we expect the impact to lessen. And for Saint-Tropez, we're encouraged by some extremely strong EPOS data in the US over the past couple of months, consistently up double digits. And tomorrow, our beauty team will be announcing the first of our new products for the 2023 season. And these will be heavily supported by our global brand ambassador, Ashley Graham, giving us further confidence that the half two performance will be better than the first. We also expect several percentage points of margin improvement related to input cost trends in the second half as inflation moderates and and mitigating actions increase. For example, the full annualized benefit of accelerated UK price increases and other RGM activities, which took place during the first half. Overall, therefore, we expect the 6% like-for-like revenue decline we reported for half one to reverse in half two, which combined with a more favorable cost outlook should lead to a significant improvement in the margin in the second half of the year. Moving on to Asia-Pac, where we have continued to see strong growth, with revenue up 7.5% on a like-for-like basis. Our Australia business And so we can now contemplate new growth opportunities. In Indonesia, we've seen a softer customs baby performance, low single-digit revenue decline, as the more recent increase in inflation has put pressure on disposable household incomes and in turn led to a decline in the baby toiletries category. We continue to focus on evolving our portfolio towards the higher margin subcategories within Bailey, such as oils and lotions. Finally, Africa revenue increased by 30%, of which half was like-for-like growth. With high inflation, this growth has unsurprisingly been mainly price-mix led, but that said, volumes declined only low single digits, reflecting the quality of our brands, both must-win and portfolio. And this performance has seen us achieve an operating margin of nearly 12%, the highest since 2015. And Jonathan will talk a little later about the actions we've taken to deliver this. Turning now to cash flow and the balance sheet, our balance sheet remains strong, with net debt to EBITDA of around 0.4 times on a last 12 months basis. We generated 4 million pounds of free cashflow during the period with our typical seasonal working capital outflow and some additional early buying of raw materials ahead of future price increases, translating to higher stock levels in Nigeria. We also expect a strong sellout performance in beauty in half two to further reduce stock levels. We realized another 13.5 million pounds from the sale of residential properties in Nigeria, bringing the cumulative total to over 30 million. The other big movements in net debt were the payments of the final FY22 dividend, the extension of a loan to our Wilmar JV as we elected to make our surplus Naira cash balance work well for us and limit the need for more expensive external operational funding locally and for it. Turning finally to the outlook. We remain mindful of the challenging macroeconomic environment, but we still expect to deliver full year profit before tax in line with current consensus estimates. We've slightly updated our outlook on affected tax rates and the interest charge for the year, although these broadly net each other off. All in all, a robust performance set against a difficult external backdrop. We continue to see a picture of improving consistency of delivery, and are building a higher growth, higher margin, simpler and more sustainable business. And we remain confident in our long-term ambition of delivering mid- and single-digit revenue growth with a mid-teens margin. And with that, I'll hand back to Jonathan.

Thanks, Sarah. Now, while you will all hopefully be familiar with this slide by now, we will continue to show it to you as we do to our teams internally. it is important that we remain focused on our strategy, including where to play and how to win, as well as highlighting those areas that will enable progress as we move from turnaround to transformation. I'll talk you through some of the strategic progress we've been making, but first, a word on the current environment. As Sarah mentioned, conditions in the UK have been tougher than we'd anticipated and probably tougher than any of the other markets in which we operate. However, we have been working hard to respond to those tougher conditions. We have invested behind our brands with new, better marketing activity over the past year or two. We have new leadership with talent in critical areas, and we're building stronger relationships with our key customers so we can serve their shoppers and our consumers better. First of all, we've been working hard to remove costs that the consumer doesn't see or value. to ensure we offer them great brands at the best possible price. Beyond those efforts to cut out inefficiencies, there have been other ways that we have sought to offer consumers value where they need it most, while also mitigating our own cost pressures and preserving our flexibility to continue investing in the business. Take innovation and the power of our portfolio as an example. Our recent relaunch of Imperial Leather was not only a chance for us to re-establish the brand as a touch of everyday luxury, with improved fragrance, better lather and preferred packaging, but also an opportunity for us to introduce customs creations, which has so far exceeded expectations, showing there is real demand for quality products at a lower price point. Simply put, we're aiming the right brand at the right price to serve the right target consumers. Another example is the reframing of value. Value means different things to different people. It does not have to mean cheap. Let's take Saint-Tropez and Saint-Tropez Spa. As you know, these two brands sit at the more premium end of our portfolio, and they both offer consumers the chance for everyday indulgence and relaxation at home. compared to the far higher price points of out-of-home treatments at their local spa or beauty salon. And finally, pack formats and sizes have a role to play. We had talked before about the role of refills on CareX, which continue to lead the refill category with a share of over 60%. Now we see good growth in our refill offerings on Sanctuary Spa too, growing 200% in the past year. and we're extending our refill range with the launch of an original sauce bottle for life as well. These all offer better value for consumers versus buying the regular packs, while also encouraging reduced usage of plastic. The UK market has been a little more challenging than we expected, but we've been working quickly to adjust and strengthen our plans in response. We have also been working hard in other markets too, most notably Nigeria, where we're beginning to see sustained improvement in performance. Some of you may recall the seven years of profit decline culminating in Nigeria making a loss in our financial year 2020. It was for this reason we set out as part of a strategy we launched a little over two years ago that a key priority would be to turn around the performance of the market and that we would adopt a self-help approach to do so. And that is what we've done. We have significantly reduced complexity with the sale of non-core residential properties, delisting of tail brands, reduction of SKUs, and establishing clear portfolio choices to drive focus and quality growth. We have strengthened our leadership team and re-engineered our SAP setup to improve financial controls and drive process efficiencies. As with all our markets, we have been focused on growing our brands, specifically our market-leading must-win brands in Nigeria, in which investment has increased dramatically since 2020, and innovation has been focused on boosting gross margin. At the same time, we have overhauled our route-to-market capabilities in our efforts to win wherever the shopper drops. Getting the right SKUs into the right stores, which varies from region to region and between different channels in Nigeria, is critical. And our increased ability to get this right has been enabled by us doubling the number of stores that we now cover and call on directly with our own distributed sales teams, rather than delegating that role to wholesalers or sub-wholesalers. There is, of course, more to be done, but we have returned to growth after the years of declines. with all our Muslim brands in Nigeria in strong growth, and Premier Cool Soap, for example, growing at nearly 50%. Overall, we're on track for a third year of profitable growth. As Sarah mentioned, the market that has perhaps the furthest progressed through the journey to transformation is Australia and New Zealand. where the macro and consumer backdrop is somewhat more favourable than the UK, albeit with inflation still running at nearly 8%. Our plans have driven growth across all of our brands, contributing to category growth and making market share gains. As you can see here, our largest three brands, which account for over 80% of our revenues, are all in sustained growth over the past 12 months. and we'll also see resilient performance of our brands against private label in Australia. In our largest category of washing up liquid, private label has lost around a fifth of its market share in the last quarter. In the past, ANZ for us was a business that was up some years and down others, reflecting the historic view that its role was more as a source of funds for expansion elsewhere and less as a source of growth. We firmly called it out as one of the top four priority markets in the renewed strategy that I showed you earlier, and we reoriented our approach to drive profitable growth. Credit to the team on the ground and those who have supported them for their work to serve Australian and New Zealand consumers better, to build more effective relationships with their demanding modern trade retailers, and to build a stronger organisation of brand believers. Not just in ANZ, but more broadly across all of our priority markets, our primary strategic focus is on building trusted and well-loved brands, with a particular focus on our must-win brands. These are the brands which we are disproportionately investing. With brand investments so far in FY23, more than double the level of that in the first half of FY20. This is in part funded by a 30% reduction in investments in our portfolio brands. We are intentionally focusing our spend behind our strategic priorities and striving to maximise our return as we do so. You can see a reminder of some of the campaigns we've supported over the past two years here, and I'm pleased to say that revenue of our must-win brands is up double digit compared to the first half of FY20. Let's look at a couple of our more recent campaigns in detail. We launched a new campaign for Original Source in 2021. And some of you might remember the slightly edgier execution of that campaign we showed you at our full year results, when we were on the front foot to appeal to our target consumers. And we've continued with this focus, launching our first ever TikTok campaign in 2022. It gained nearly 2 million views and has helped to drive brand awareness, household penetration, and market share. Sanctuary Spa, another of our Muslim brands, supported by a three-fold increase in brand investment, was relaunched in the summer with new product innovation, new, more sustainable packaging, and a new TV and digital campaign. Sanctuary Spa grew revenue again in the first half of FY23, and it is well-placed to deliver a third consecutive year of strong revenue growth, with household penetration increasing by a third compared to two years ago. Finally, a few words on Child's Farm. We are pleased with the performance and strategic progress of Child's Farm, which we acquired last year, our first acquisition in eight years. Being part of the Pizak-Cussens family is already paying off, with growth opportunities enabled by existing capabilities and new partnerships. The first of our priority markets to integrate the Child's Farm business into our own operations is Australia. Our relationships with baby care buyers and Australian retailers are already well established, thanks to our market leading portfolio brand, Rafferty's Garden. And we have now added child's farm to our Pisa customs operations there, from sales through to supply chain, including the launch of a new direct consumer website in Australia, to which the response has already been positive. Elsewhere, we continue to see and realise opportunities to take the brand into new markets, We signed an agreement with Boots International to expand the brand in the Middle East. And we also see further opportunities for Charles Farm in Europe and the US. And finally, we're pleased that Charles Farm will soon be launching this month a new range of baby and toddler products. The first new range of products developed since acquisition. So watch this space. So in summary. We have made good progress against our strategy, delivering continued profitable, like-for-like revenue growth. All of this achieved while managing the external volatility, thanks to the strength of our brands and the work of our teams over the past few years. We are confident in our strategy, and whilst we are under no illusions that there is still more to do in addressing some legacy issues, good progress has been made. We are building a higher growth, higher margin, simpler and more sustainable business and are confident in our long-term ambition of delivering mid-single-digit revenue growth with a mid-teens margin. With that, I'll hand back to the operator and it's over to you for your questions.

Thank you. If you would like to ask a question, then please dial in to the conference call and press star followed by one on your telephone keypads. If you change your mind, please press start followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. As a reminder, start followed by one to ask a question. Hello, yes, can you hear me? Okay, we will now take our first question from Siobhan Lynch from Deutsche Bank. Siobhan, please go ahead.

Hi, good morning. Thank you very much for taking my questions. I have three, if it's possible. Maybe to start off with your guidance on the tax rate for 2023, you referenced the 26% to 27%. Is this something that we should be applying beyond 2023?

Unless it's the operation we start back in.

Can you hear me? Apologies, we have lost connection with the speaker line. Please stand by while we try to reach you.

Thank you. You will now be transferred. Hello, this is the management team.

Oh, hi there. We're from Tibet.

Hello, the speaker line has now reconnected. Siobhan, if you can continue with your question, please.

Hi, morning, sorry, thank you for that. Hopefully you can hear me now. So my first question was just on the tax rate guidance.

be thinking about maybe from FX, for example, in Nigeria that don't maybe carry over into H2 and beyond. And then very finally, if you could just touch on pricing discussions with retailers, maybe kind of separately in each market, but have you taken most or all of the pricing that you need to take now or is there more to come in the second half and how easy or difficult are those discussions at the moment? Thanks very much.

Thanks Siobhan for your question. So maybe if I take the first and the second questions and then Jonathan will talk about pricing, the pricing environment and retailer dynamics. So the reason we have guided to a higher tax rate for the FY23 financial year is the disproportionately high proportion of our profits that we are generating in Nigeria, a higher tax rate jurisdiction I think in terms of forward modeling, I think 26, 27 is probably a little bit toppy, so I'd be thinking more around 24, 25 over a two, three, four-year period. That's probably how I'd have you think about the tax rate. If I caught your question correctly, it was around the margin progression in Asia-Pac and Africa and the extent to which we believe it's sustainable. And without making a glib one-line comment, the answer is yes, we do believe it's sustainable. So we have benefited specifically to your question around Forex from some translational benefits in the first half of the year, but actually we see some of those benefits unwinding in the second half of the year as the Naira, which accounts for 30% of our profits, and the Indonesian Rupiah have weakened by about 10% in recent months. We also have a relatively stronger U.S. dollar accounting for a high proportion of our cost base, stronger year on year. So I wouldn't think about FX as being a one-off help or hurt for us in FY23. Actually, what is behind the two percentage point improvement in Asia pack margin and the four percentage point improvement for our Africa's region is the actions we've been taking through pricing and revenue growth management portfolio management and self-help productivity initiatives to mitigate the external cost headwinds. So I think you should consider that we have good underlying momentum in those two margins. Jonathan, do you want to talk?

Yes. So when I pick up the third question that you asked, Siobhan, so we are continuing to talk to all of our customers about how we help them and us mitigate cost whilst also making sure we continue to offer great value to their shoppers, our consumers. And I would say that we would expect that work to continue. Obviously, the bulk of inflation in terms of commodity and logistics has already been felt. There are still some lagging elements that continue to see some pockets of increasing costs. But overall, we will be looking to get the benefit of some of the in-year pricing actions flowing to full year. And then it's much more a question of how we continue the journey we had already started before the commodity inflation or the inflation crisis, if I can call it that, of trying to improve our overall price mix as a company whilst mitigating volume elasticities. And we expect those volume elasticities to ameliorate as we move through calendar 2021. partly because of some of the more sophisticated revenue growth management actions we're taking versus straight pricing. And as you can imagine, the execution of those actions can be quite different between a developed market such as the UK or Australia or our more emerging markets such as Africa and Indonesia. But we're trying to work with all the tools in the revenue growth management toolkit to help us get that tightrope walk correct between mitigating costs as much as we can whilst also offering great value and protecting our ability to invest.

That's really helpful. Thank you very much.

Thank you. Our next question is from Damian McNeill from Numus. Damian, please go ahead.

Hi. Morning, everybody. Thanks for taking the call. Just a couple of questions. I think on the European build back in H2, I think you gave some pretty clear indications of how. I was just wondering whether you could drill down into a little bit more about what you're expecting for what's assumed about the Carex sort of market recovery in that. And then also how much of the pricing that you need is is actually secured with your retailers how much is yet to be negotiated and what how we should be thinking i guess about margin progression in in the sort of the second half obviously it's going to be up but i mean it's still i mean are we expecting sort of comparable levels to fy 22 in the second half sort of so high teens or or perhaps not as much, but then 24, we see a continuation of that trend, I guess is my first question on Europe. Secondly, one for Sarah on central costs. Should we expect the central cost run rate in the first half to continue into the second half? And then I think just one more, really. I think on Nigerian simplification, how much... more property sales are there to go? Could you just remind us how much of that? And then sort of more generally, how close are you to sort of saying that, yeah, the simplification is now complete in Nigeria and we can sort of think about the transformation, more about the transformation of that business, please.

Okay. So I thought your first three questions were three questions and then you said that was your first, Adrian. So it's good that you're keeping up on our toes. Good morning, by the way. Why don't I deal with that whole question about Carex and pricing and the rest, and then Sarah can come in on central, and perhaps between the two of us, we can finish off on Nigeria, what is the state of play, how far we are through that journey. So the overall UK washing and bathing category is a volatile, and I'll explain what I mean by that, category at the moment. We have ups and downs, but overall it's down. As Sarah's material said, it's down 8%. Within that, what we're seeing is two different dynamics. One is the continuing normalization post-COVID, and that is happening in liquid soap and in hand sanitizers. Hand sanitizers, that market is down 50% versus a year ago. We're growing share, very importantly, so we're well-placed for when it finally normalizes, but it's still in rapid decline, and that's on a 52-week basis. We are seeing double-digit decline in the liquid soap category as a whole, also as people begin to normalise in their soap usage post-COVID. So those two parts of the business, which are primarily impacting CareX, as you can imagine, the tide is going back down and we are working hard to make sure we are best fit to hold and grow market share. as that market normalizes. And Sarah mentioned that our revenues on CareX currently are running 20% above pre-COVID. So we've got some reasons to feel confident that as that market normalizes, we will continue to be well placed as the market leader in both liquid soap and sanitizers. Exactly when? It's harder to say, but we would expect that to be cycling through, we hope, over the next three to six months. Let's remember we still have some form of lockdown as recently as December 21, right? So we are still trying to cycle through the effect of that. Your second question was more related to pricing, right? And have we secured it all? Are we still in negotiations? Well, we're obviously not going to talk publicly about what the state of all our detailed discussions are with our retail partners, but the good news is But overall, we have already made a lot of progress at improving price mix. Much of it not yet fully reflected in those H1 numbers because the actions and interventions were landing at various stages through H1. And that obviously then links to our confidence in the improving picture of margin in H2 and then full year effects as we move fully into FY24. Hence, you can see it's a rather opaque right-hand bar on that bar chart in Sarah's presentation, intentionally, but we are confident that we will see progression. So why don't I hand over to Sarah to say a little more on that, and then she can talk central costs, and then we can talk a bit more about Nigeria.

Morning, Daniel. Let me try and contextualise the margin recovery. So you should expect the Europe and America's margin in the second half of this year to be up on the prior year. and to be more like last year's full year margin. So that implies for the full year this year, still a backward moving margin for Europe and America, which contrasts with a modest margin erosion for the group as a whole, as we've sought to maintain investment in the face of significant cost inflation. And the reason I say that is actually for FY24, although it's very early, we see some of those cost headwinds ameliorating in terms of the external inflation environment. But also what's really held our margin back this year is that adverse geographic mix. And we expect the UK market to recover and recover strongly in FY24, if that gives a little bit of colour around the magnitude of those margin moves. So central costs, certainly for those less familiar, houses three main buckets. One is our central capability investments, be they commercial or be they corporate, that don't reside in any of our specific business units. They also house our internal fragrance business and some of our intercompany movements by virtue of us having an internal procurement hub in Singapore. So if you recall, we've announced a significant transformation of our supply chain, one of which is to move our procurements operations back to the UK for both some overhead savings and actually better buying. We are outsourcing, we've taken the decision to outsource our fragrance manufacture for a higher quality input into our products, but also a lower overall cost. So yes, your half one central cost number, you can safely extrapolate into half two, but the makeup will be different. Increased investment behind strategic capabilities, but more economically viable fragrance and procurement business units, if that's helpful.

Yeah, that's really clear. Thank you, Sarah.

Very good, Damien. My pleasure. So property sales. So 13 and a half more in the period, cumulatively now just north of 30 million. We are almost done on residential property sales. We have more commercial properties that given our operational simplification we don't need in our operation. They are a little more difficult to monetize. And we are being very mindful actually because the property markets generally in Nigeria are appreciating whereas the Naira is not. So I'm not in any hurry to liquidate assets into Naira right now, but we think there's absolutely more value. We are probably two-thirds of the way through those operational non-core assets, I would say. And then I'll let Jonathan come in, but I think on our definition of simplification in Nigeria, we are not done. So some of those Real simplification unlocks, if I think about the macro portfolio, are harder to get at, but of significantly more value. But that will take us some time. But we are determined to go after all the value that we can.

Exactly right. We are really looking not only to realize value from non-core assets, looking to simplify the operations that people could be focused on growing the business. But our goal is to create a springboard for growth, both in Nigeria and Africa. And I believe we have made good progress, but we still have some way to go. And we'll let you know when we have more to say. Okay, thank you very much.

Pleasure. Thank you. Our next question is from Clive Black from Shaw Capital Market. Clive, please go ahead.

Good morning, Jonathan and Sarah. Thanks for the presentation. Sorry if this has been asked already. I struggled again to start the Q&A, but three questions about me. I don't think it's Damien's three. First of all, just in terms of your long-term aspirations around mid-teens margins, what's your definition of long-term? That would be helpful. Secondly, from a market share perspective, you touched on Carex in the UK and the great successes in Australia. I just wonder, group level, if you could talk to us about market share overall. And I guess that links into my third question about the UK in terms of the evolving market. I mean, is it a case that the dramatic growth in share and bargain stores, so Sabres, B&M, Home Bargains, for example, is a structural problem? impediment to margin advancement in your categories in this market that will probably persist after this consumer recession, whether in recession or not remains to be seen, falls through. That would be helpful, please. Thank you.

So why don't I take the market share and the discounts? Why don't I do those now and then Sarah can come back on the definition of mid-teens when, which is essentially what you're asking. Thanks. Morning, by the way. So market share overall. So we have, generally, we have share gain momentum across the group, but it is not uniform. And the reason it's not uniform is in some places we have consciously chosen to constrain volume in the pursuit of trying to improve some gross margins. And you all have heard Sarah mention on our electrical business in Nigeria, that was a clear choice at the beginning of the year. We've demonstrated in Australia that we've got really good momentum. Growing shares and growing categories is a really good place to be in a consumer goods business. Indonesia's been a bit tougher. And the reason it's been a bit tougher, we've held share in the last 12 weeks very marginally grown. The reason that we're not seeing bigger improvements in our revenue versus share, though, is because the baby category is under a bit of pressure. We're actually growing share in the mini market channel. But the other 85% of the market, which is, if you like, general trade, grocery outlets, we are holding in a declining category. So in other words, and it's a little bit, it's not totally the same as what we see in the UK, like, you know, the poorest consumers are, those with the least discretionary spend are the ones getting hit hardest by cost of living. And so in the lower end of the trade, if I can use that term, you know what I mean, in Indonesia, we're seeing people just stop buying. If we then look at Africa, actually, we have better share momentum. As you can imagine, the share data quality is not as good, less empirical. We read it over longer periods to get a more reliable read. But overall, we're in good shape. And in some of our categories, we're seeing really good growth in terms of share performance, particularly those that are disproportionately appealing to higher spending consumers. So we see good share positions in Morning Fresh and Customs Baby in Nigeria. If I bring it back to the UK and then link it with your question on the, if you like, the long-term impediments of channel development. In other words, if shoppers get established in either high street or German discounters, as a result of the swing to discount channels in the current cost of living crisis, which I think is what you're talking about. You know, our job is to develop a portfolio that is able to win wherever the shopper shops. And I can mean in brand. So we want to have a number of different brands that play at very different price points so that we're able to meet those different consumer spending levels. But it also, as you well know from your expertise in this area, is how we play our brands in terms of pack price architecture across different retailers. And in my experience, when it's done well, you can do that with the right margin structure to meet your ambitions over time. And that is what we are working hard to do. Win where the shopper shops. and ideally do it in a way which enables us to protect and improve our margin structure over time. But that's that Gordian knot of the brand building meets channel challenge in the UK. It's not unique to us, but we're working really hard at getting it right. Sarah.

Good morning and thanks for the question. I'm inevitably going to say I'm not going to give you a precise number to a very precise timeline. And the reason I say that is we see volatility on the horizon. And remember we said we did have and do have still some legacy issues which were years in the making. The transformation will be years in the fixing. That said, when we made that mid-teen margin statement at our capital market today in March 21, we are as confident now as we were then. And that's despite having absorbed some 70 or 80 million of cost inflation since then. We knew our margin progression would be a little more pedestrian in the early years as we put back much needed investment to drive future profitable growth with us seeing some more meaningful margin progression from FY24 onwards. So I hope that answers the question as best as I can.

No, it is a loaded question, Sarah. I'll give you that. Short term to us would kind of be sort of a year or so. Medium term would be sort of two to three years. And long term would be at the back end of five years. I just wanted to understand your definition of long term. Thank you.

Thank you. Our next question is from Nicola Mallard from Investec. Nicola, please go ahead.

Hi, good morning. I think I'll do the usual three questions as everybody else has. Just starting on the margin, I mean clearly you've just reiterated the margin target is intact at mid-teens which is where you'd set it at the outset of your plans. Clearly things have changed quite a lot and you're still holding on to that margin target which is fantastic but Did you expect to see the swing that we've seen away from Europe and into Africa and APAC to some degree, perhaps not to the degree that it's happened? So I'm just wondering how your maintenance of the target fits with what we've actually seen so far in terms of the geographic mixes. Secondly, on Nigeria, you've talked about self-help and that's been incredible, the performance of the business there. how do you see that fairing if there is a bit of an economic shock given the elections are due and you know these things always tend to create a bit of volatility and then finally on the joint venture with the electricals business you said you deliberately managed that for margin and you took a volume hit was that a strategy that you'd agreed with your jv partners because clearly sometimes that doesn't suit them if it suits you thank you sarah do you want to talk

Margin and I'll talk Nigeria and tech.

Yeah, let's do that. Morning, Mitwa. Morning. So let me, if I answer the question directly as posed, did we expect the UK decline to be such a margin drag for us this year? No, we didn't. The washing and bathing category decline was greater than we expected. Now that said, what it's meant we've been able to do and needed to do is pull different levers and pull them to differing degrees. So if I think about the full year margin and indeed the half one margin, actually by far the biggest proportion is that adverse geographic mix. So we mitigated the cost inflation to within 50 bits of margin, which gives us confidence as we go forward that actually in FY24, we ought to enjoy, if I can use that word, both a natural rebound from the Europe and America's business, plus we will have built the capabilities and have the momentum to take that pricing through into FY24 whilst the inflationary headwinds seed. So have we had to pedal slightly harder this year to deliver the number? Yes. Have we learned some things? Are our capabilities intact and our teams up to the challenge? They absolutely are.

Thank you.

Okay, so let me pick up on Nigeria and then electricals. All right, so yes, you're absolutely right, Nicola. You'll remember well that we specifically said we wanted to use a self-help approach to improve our prospects in Nigeria rather than necessarily, as we may have done in the past, say we float up and down with the tide and the challenges that we see externally. And it was great that you recognized the progress that's been made. There are some things that are in our control and there are some things that are not in our control. So what's been in our control is trying to make the business simpler so we can be a bit more resilient and also upgrade some capabilities where potentially we had some gaps before. Some of that's been on the ground and we've made really good progress building stronger brands, overhauling our route to market. Some of it's been a combination of on the ground and also in our UK group area and some of the treasury management tools and capabilities that we have developed and adopted in the last year or so that really helped us. Helped us do what? Helped us get more resilient and better prepared for when there are shocks or surprises externally in Nigeria. You refer to the elections. So there are two rounds of elections, some this month, some next month. What I would also add is there's been a change of currency, hard note currency, which is causing some day-to-day disruption, literally on the ground this week in Nigeria. And what we've been seeking to do is to make ourselves better able to cope with those kinds of disruptions. And so far, we absolutely have been able to. I'm very clear, a little bit like when we were talking a few years back with the risk of Brexit, what was it going to do to the UK? We can get ourselves ready. We can't control what we can't control. So we're focused on making ourselves stronger and more resilient, and we will continue to do that. On electrical specifically, you bet we've been staying close to our joint venture partners. We want to build a more profitable, sustainable business in the long term. And actually, we've only been talking to them in the last week, reaffirming how we are going to grow that business successfully.

Okay, thank you.

Thank you. Our next question is from Patrick Phelan from Barclays. Patrick, please go ahead.

Hey, good morning, Jonathan and Sarah. Thanks for taking my questions. Yeah, I'm going to continue the trend of three questions and kind of more brand specific. The first one's on the hand sanitizer category. Can you just give a bit of the dynamics going on in the market in terms of the category was down 50%. What was your kind of headwind within Carex for the last six months? And the share gains you're seeing, is it from capacity coming out of the market or is it from other branded players? So that would be the hand-financed question. And my second one would be on Sandra Pay in the U.S. How is household penetration changing? trended over the last six to nine months. Some of the data we're seeing is that self-tanning kits have been seeing a bit of stagnation in the market. And I'd say the third question, kind of going back to Nigeria, would be on the volume headwind you saw in the electrical business. Which white goods were they in? If you can give a bit of color on that to get a bit of, I guess, color on the Nigerian consumer and how that may trend if we see a bit more deterioration in the macro-margin there. Thanks.

Okay, so why don't I talk through some of those responses. Patrick, good morning, by the way. So hand sanitizer, let me talk you through the dynamics. Even at a 50% reduction over the last year, the category is still bigger than pre-COVID. So whilst the consumer habit may have waned for many, it has not waned for all. And during that period, we grew our market share by seven points. The more underlying dynamic, even beyond what are we doing as individuals, is what happens to the glut of inventory and the plethora of non-branded and even branded entries that flooded the market during the peak of the pandemic. And so there has been huge pantry stock in consumers' homes. There's been huge stock in some retailers' warehouses and stores. You may also have seen what I have seen, which is some retailers literally giving it away free with other things just to clear the stock in their system. So actually, in an environment when there's free sanitizer gel going around, we're quite pleased that we've grown seven share points in the market. Exactly how and when that's all going to unwind... As I said with liquid soap, when the unwinding finishes, we would expect that to be in the next three to six months. But our expectation is the market will settle a little higher and we will continue to be the clear market leader as and when it does do that. Moving to Saint-Tropez in the U.S. So over a multi-year period, we've had a really good track record of growth on Saint-Tropez in the U.S. It was slower in our first half. And it doesn't surprise me that what you've seen on household penetration, we have also seen. I would say a couple of things to give you some reassurance. Since the end of our first half, we have, i.e. into our second half, our third quarter, we have seen significantly improving trends in our U.S. central pay business. and that is before the introduction of the innovation that Sarah mentioned earlier. And as you'll see when it comes, it's an introduction that is absolutely linking the self-tan benefit increasingly with premium skincare benefits because we believe not only is that a way to drive real value for our consumers, but it also differentiates us from some of the other players in self-tan in the U.S. market. And, of course, what we'll be repeating as part of that launch is the very successful activation leading with Digital First of Ashley Graham as our brand ambassador. I've seen all the material and the content that we have filmed with Ashley and we're very excited about how that campaign is going to go. And then the last thing, to come back to your tech, we can follow up with some of the specifics as to which elements of which goods, because you'll remember we have quite an array of products from fridges to freezers to washing machines and power generators in our Nigerian lineup. And what we have tried to do is make sure that we have priced not beyond the market, but we have priced to protect our premium tier offering in the market, rather than necessarily react to low price entries that have come in from other players. And part of protecting that price premium is a very strong after-sales service, which is a real competitive edge that we have. So it has been less acute in any one category and more a general drive for us to get that right balance between driving premiumization or protecting our premiumization in the market and accepting some level of low volume elasticity decline.

And maybe just in terms of portfolio, Patrick, what I would add is actually the team, it's a really good example of our multi-local operating model working. because the team have put some highly relevant local innovation into the market. So in what is, on the face of it, a highly discretionary category in challenging economic times, fridges are down a little bit. Actually, freezers are holding up, because Nigerian families use it to run small businesses and sell the ice. And power generators is definitely not a discretionary choice in Nigeria. So if we choose down a little bit, some of the higher margin freezers and power generators are still doing very well.

Great, thank you.

Thank you. Our final question comes from Darren Shirley from Shore Capital. Darren, please go ahead.

Yeah, morning all. Just two questions from me, so we're easing down a little bit. First of all, You've mentioned on sort of legacy issues on a number of occasions now in the presentation and on the questions. I mean, you've obviously highlighted Nigeria as being a hub of a lot of those, but I mean, is there anything else elsewhere across the geographies which particularly stands out as an opportunity for you or as a big legacy issue for you that needs resolving? And then... The second one would be, I mean, you guys now are a couple of years, two or three years into the business now, traded it through some extreme times. I mean, when you look at the portfolio that you're in now, is there anything that you're increasingly viewing as maybe non-core to the business? Maybe not in the business, I'll say like a two, three, five year view. Anything you can comment on that would be interesting as well.

All right. Hi, Darren. Good that it was two. Thank you. That's five to sure cap, but we'll let you off. Right. Very nice to talk to you. Right. So the legacy issues. Obviously, we have talked a lot about Nigeria. We could extend that a little bit to some other parts of Africa. We still have some, frankly, some non-core assets in some other West African countries that we haven't talked a lot about. But at some point, we will do as we continue to tidy up some of those, if you like, minor legacies. On the broader question about where else, actually, I would elevate it up a little bit and make it slightly more conceptual, which is actually the cultural change that we're continuing to try to drive in the company as we really try to shift us to a business that's demonstrating the pioneering spirit that we have tried to reignite back from some of the previous decades of growth. And I think we've had some parts of our business that have responded really well. I love it in the next question, you talked about extreme times since we started Enroll. That's all we've known in Enroll. So they're normal times, but it's extreme in those normal times, right? And we've had some parts of the business and some individuals who have really demonstrated that they've embraced the new values that we've put out there, right? One of which is bold, right? And actually, we're still trying to dial up, whilst being suitably risk-assessed, a more uniform level of boldness across the business. And so that's more the legacy issue that I think I would be referring to there. And some of that definitely applies in the UK as well as other parts of the world. On the extreme times and what do we see as the right portfolio for the future? Yeah, we're really clear. We're in the business of building brands and we're really clear it's in core categories of hygiene, baby and beauty. We said before, that we are now ready to look a bit beyond our priority markets to expand those categories. And, you know, putting child's farm into Middle East, for example, would be a really good proof point of that. What we're not going to do is suddenly put up a sale sign up and give you three years notice on something else we may be trying to do with our portfolio. but we are always very proactively looking at what is the best way for us to deliver our strategy and thereby realise value for our shareholders. And that's what we're focused on doing.

Just coming back on that comment around cultural change, I mean, should we take away there that there's still some sort of silos within the business that's breaking down, that needs breaking down, or it just needs more time for sort of the um because that's the idea that's what i think you talk about just to to figure that out

Yeah, no, Darren, I think it's less silos. It's more cultural change takes time, right? And we are trying to galvanize an organization of thousands of people to try to work in a different way. And we've made really good progress. I mean, I hope that's not me scoring my own homework. I hope you would recognize the momentum in the organization and the business that maybe we had lost a little bit previously. And what we're determined to do is to continue to drive that change as we drive an overall transformation of the business.

I mean, Gibney didn't seemingly leave that room for about 18 months. Go on, say that again, Darren.

I didn't catch that.

No, I mean, given every time we spoke here, you seem to be in the same room for 18 months and couldn't get out. Exactly.

Exactly right. Exactly right. So we'll be in, Sarah and I will be in Australia in literally a couple of weeks. I'm going to be in our U.S. office for the first time. That's the one office I haven't been to yet. I'll be in our U.S. office. Sarah and I were in our Nairobi office recently. We are genuinely trying to drive that change now that we have been unleashed and liberated. to travel and meet our team.

Thank you. That is the end of the Q&A session. I will now hand back over to Jonathan Myers for closing remarks.

Brilliant. Thank you very much. Moving on swiftly from the air miles reference from Darren. Well, I would like to say thank you very much for your interest. Join the call. Thank you for your questions. I hope what we've been able to demonstrate is that we continue to make progress against our strategy. We are working hard to build a higher growth, higher margin, simpler and more sustainable business. And we're trying to get that balance right between making progress on our strategy whilst delivering and by making progress on our strategy, delivering value for consumers the world over. And we look forward to updating you on our progress next time.

This concludes today's call. Thank you for joining. You may now disconnect your lines.