PZ Cussons Plc

Charlie and I'll be coordinating the call today. If you'd like to ask your question at the end of the presentation, you can do so by pressing star followed by one on your telephone keypad. I will now hand over to our host, Jonathan Myers, Chief Executive Officer to begin.

Jonathan, please go ahead. Thank you, Charlie, and good morning, and thank you to all of you for joining the call. Today, Sarah and I will update you on our results for the year to the end of May 2023 and progress against our longer-term strategy. As usual, I'll start by providing a short overview before handing over to Sarah to take you through the financials and the outlook. After that, I'll talk through some of the operational and strategic highlights in more detail and also provide an update on our priorities for FY24. We will then, of course, be delighted to take your questions. One brief matter of housekeeping, and to prove that we are indeed live, we've just been informed there will be a one-minute fire alarm at 11 o'clock. So we'll have a very brief pause when it begins, and then we will pick up from where we left off. Such is life in the volatile markets in which PZ Customs operates. So back to the presentation. Let me start with some key messages to update on our progress. First of all, we have delivered a third consecutive year of like-for-like revenue growth, with revenues up 6.1%. We've seen a sustained performance in Australia and New Zealand and a return to growth for our UK personal care business by the end of the year. Our continued brand building activities meant that the majority of our must-win brands were in growth too. We've been able to achieve this while navigating continued external uncertainties. We have successfully absorbed around 80 million of cost inflation over the past three years, and we are dealing head-on with the well-documented challenges of the Naira devaluation in June. Now, while all of this has taken a fair bit of street fighting, and there's no doubt we'll need more of that in the coming months, we haven't taken our eyes off our strategy. We have continued to make good progress, investing in our capabilities, our people, and our brands. And I'll talk more later about how we're not only strengthening and growing our core, but starting to expand beyond it. To achieve this, we have set the organization clear priorities for the current financial year with an appropriate balance of short term interventions to tackle external challenges while also planting the seeds for future growth. we remain as excited as ever about the attractive long-term opportunities we see in building a higher growth, higher margin, simpler and more sustainable business. Sarah, over to you.

Thanks, Jonathan. Good morning, everyone. I'm going to walk you through the performance of the business last year and share our outlook for the coming year. Overall, we delivered a solid financial performance in FY23 against a backdrop of ongoing external volatility and uncertainty. We delivered a third consecutive year of like-for-like revenue growth. And this was the primary driver of the 10.7% reported revenue growth which was also supported by the strong contribution from Child's Farm and favourable forex. Operating margin of 11.2% was down 10 basis points, but up around 10 basis points if we adjust out Child's Farm from both years. A creditable performance in light of continued cost inflation. We're reporting growth in profit before tax of 12.6%, ahead of consensus estimates. Despite this, EPS was down, reflecting a higher tax rate, up from 19.5% in FY22 to 27.1% in FY23, as well as an increase in minority interests. Both of these factors are explained primarily by the strong profit growth in Nigeria during the year. Recognising the devaluation of the Naira, which took place following the end of our last financial year, and which will have an adverse impact on FY24 financials, the Board are proposing that the final FY23 dividend be held flat, equating to a flat full-year dividend of 6.4 pence. Cash flow improved versus FY22, and saw us move from a net debt position to one of overall net cash. I should also note at this point the non-cash impairment we recorded on Sanctuary Spa, impacting our statutory profit results, and I will reference this later in the context of the UK washing and bathing category. Let's take a look at the FY23 performance in more detail. The like-for-like revenue growth of 6.1% was driven by both Asia-Pac and Africa, offset by a slight decline in the Europe and America's business. All but three of our must-win brands grew in the year, and we'll comment on them later. Reflecting the inflationary environment, growth has been primarily driven by price mix and with the volume decline mainly in Nigeria. The acquisition of Charles Farm, which completed in March of 2022, improved reported revenue by 11 million. Movements in Forex provided a benefit to our reported numbers in FY23, reflecting the general depreciation of sterling against most other currencies, including the Naira. And we've provided a breakdown in the appendix. Now, this favorable position has, of course, reversed in recent weeks. especially versus the Naira. Again, detailed in the appendix. Our operating margin declined 10 basis points versus the prior year to 11.2%. Of course, reversed in recent weeks, especially versus the Naira. Again, detailed in the appendix. Our operating margin declined 10 basis points versus the prior year to 11.2%. We saw a pleasing 80 basis points increase in gross profit margin, and like last year, there are a couple of moving parts beneath this. We've again seen a combination of productivity initiatives and revenue growth management activity more than offset the increases in input costs, resulting in an underlying improvement in gross margin double that of the reported figure. Then, as in FY22, there was a negative impact from country mix. Namely, our lower margin Africa and ANZ businesses growing more rapidly than the higher margin UK and Indonesian businesses. And this is amplified in our earnings per share performance. Africa and ANZ businesses growing more rapidly than the higher margin UK and Indonesian businesses. And this is amplified in our earnings per share performance with Nigerian and Australian profits subject to higher rates of corporation tax. The improved gross margin allowed us to increase investment in overheads, which largely represents the annualization of new leadership and capability roles created in FY22 and the restoration of the company LTIP incentive plan which had not previously paid out since 2014. Brand investment increased in absolute terms, but decreased slightly as a percentage of revenue. And this was a result of the planned normalization of Carex investment, with most brands receiving more investment compared to FY22, and with, once again, investment focus behind the must-win brands. Our Wilmar Palm Oil joint venture in Nigeria contributed £7.5 million in absolute profit terms, as in FY22, with no year-on-year margin impact. And finally, Forex caused a slight adverse margin movement due to the revaluation of intercompany royalties payable to the UK from Nigeria. Let's take a closer look at each of the reporting segments in turn. Europe and the Americas was a tale of two halves. After a 6% like for like revenue decline and 11 percentage point reduction in margin in the first half, we saw this reverse in the second half, as we'd expected. Revenue declined very slightly for the year as a whole, but this should be seen in the context of a 3% decline in the washing and bathing category in the UK, which represents around 70% of Europe and America's revenue. and more on this in a minute. The margin of 18.6% in the second half was in line with the guidance at our interim results in February and in line with the FY22 margin. Benefiting from pricing taken in the first half of FY23, a more benign input cost environment and a more normalized level of brand investment after the relaunches of Imperial Leather and Sanctuary Spa in Half One. On this slide, we've sought to lift the lid on our UK washing and bathing brands, which as I mentioned, represent the majority of the Europe and America's business. You can see the breakdown of the 800 million total washing and bathing category, shower being the most important segment. And we've detailed the largest brand within each segment, although of course our brands tend to play across several. So you can see how the overall 3% category contraction mentioned earlier came about, with hand hygiene in decline and also bath, given the... So you can see how the overall 3% category contraction mentioned earlier came about, with hand hygiene in decline and also bath, given the high cost of energy. With the exception of customs creations and imperial leather, which together grew in a declining bath segment, our brand's performance was otherwise closely correlated with their respective categories. And reflecting these challenging underlying trends, Sanctuary Spa not shown here, as although it plays across several segments, is not the single largest, saw revenue decline as the ambitious restaging of the brand, while driving positive price mix, fell below our overall year one expectations. And this was the key contributor to the impairments of the brand recorded in the results this morning. So looking at the bottom two rows of this slide, you can see that as we've entered the first quarter of this new financial year, we've seen improved trends. Bath has returned to growth, and while the hand hygiene category is slightly down, it is much improved compared to FY23, and with the liquid segment back in growth. So the takeaway here is that FY23 performance was not as we'd hoped, but also not a surprise given the performance of our categories. And secondly, there are green shoots with improved category trends and better share gains so far this year. Nevertheless, we have more work to do in the UK, and Jonathan will talk more about that key priority for FY24 a little later. If Europe and Americas was a tale of two halves, then Asia-Pac is a tale of two markets. Behind the overall 4.4% like-for-like revenue growth, we've seen a strong and consistent performance from ANZ, with broad-based share gains from our locally loved brands in growing categories. As we mentioned at the half year, we see ANZ as an excellent example of the turnaround underway across the wider group. And some of you will remember the inconsistency of... Excellent example of the turnaround underway across the wider group. And some of you will remember the inconsistency of delivery there several years ago. Offsetting the good ANZ performance was Indonesia, where revenue was down in FY23. As inflation picks up following the removal of fuel subsidies around a year ago, household budgets have been increasingly squeezed, necessitating some pullback in discretionary spend, impacting customs baby. One of the three must-win brands that I mentioned was in decline. It's taken a while for the destocking to be felt through the distributor networks, and so we do expect Indonesia performance to continue to weigh on at least the first half of FY24. We also saw some further planned reduction in revenue as we ceased some low margin Asia manufacturing byproduct sales to third parties. Operating profit margins increased 240 basis points, reflecting the strong ANZ revenue performance and a more benign cost environment and positive mix management in Asia business development. Finally, Africa, which grew revenue by 13.4% on a like for like basis. Given the inflation across the region, this has unsurprisingly been driven by price mix improvements with several rounds of price increases. But the route to market changes we've implemented and the continued brand investment we've made have helped to limit volume declines. And each of our major brands in Nigeria reported double-digit revenue growth in the year. Operating profit margin improved for the third consecutive year, a transformation since the loss-making period only a few years ago. However, as noted in our Q4 trading update in June, these results are of course presented using the FX rates for FY23. And were we to use July and August 2023 averages as a proxy for current exchange rates, Africa operating profit would have been 22.5 million, not the 37 million shown in the table, as a result of the translation impact of the Naira devaluation. And more on Nigeria in just a moment. But first, turning to cash flow and to the balance sheet. our higher operating profit converted into strong free cash flow, supported by an improvement in working capital. Cash inflows from the disposal of residential properties in Nigeria added £14 million, while the dividend was a £29 million outflow. Forex movements partially offset the inflow, and this adverse effect impact million pounds while the dividend was a 29 million pound outflow. Forex movements partially offset the inflow and this adverse effect impact will, based on current rates, be higher in FY24, reflecting the devaluation of the Naira. The overall net cash increase of 15.5 million saw us move from a net debt to a net cash position. Beneath this net cash position is UK gross borrowing and a Nigeria cash balance, as detailed on the slide, broadly offsetting and reflecting the challenges in repatriating cash from Nigeria. In the event that repatriation becomes more feasible, we will look to do so and use that cash to pay down debt or to reinvest elsewhere in and on the business. So turning now to the outlook for FY24, let me start by commenting first on Nigeria. As you will appreciate, predicting the performance of our Nigerian business this year is a challenge, but we have tried to call out the main variables and uncertainties and the mitigation plans we have in train. The underlying challenges are clear. The devaluation of the Naira in June has not only introduced adverse translational forex, impacting our reported results, but coupled with the other fiscal changes, most notably the removal of fuel subsidies, it's had a marked adverse impact on consumer spending. We're also seeing continued challenges to our own input costs, many of which are priced in US dollars. and obtaining hard currency to acquire raw materials, and in the case of our electricals business, semi-finished products, remains a notable challenge. As mentioned on the previous slide, repatriation of cash to the UK via the settling of intercompany payables remains difficult, as Nigeria has not yet seen a more comprehensive package of economic reforms successfully implemented. nor yet the realization of the benefits from the announced changes to the Forex regime. But we saw the devaluation coming, even if it happened earlier than expected. And the team on the ground have done well to navigate the necessity of taking price given the consumer backdrop. And Jonathan will talk about the other operational self-help measures already achieved. we also see opportunity for meaningful cost savings over the coming years. And furthermore, we've been working above market on more corporate interventions. For example, the planned minority buyout and D-list announced earlier this month, which will provide greater strategic flexibility in Nigeria, reduce costs and improve group earnings per share from FY25. So pulling all this together at the group level, we expect to see a fourth consecutive year of like-for-like revenue growth in FY24, with strong growth in operating profits on a constant currency basis. As noted earlier, there's an approximate £15 million forex headwind at operating profit from the Naira alone, and other currencies have also moved slightly against us. This still sees us with operating profit comfortably within the range of current consensus expectations. The devaluation of the Naira will have other implications beyond the translational impact, although these remain subject to evolving market conditions. Net finance costs are likely to be higher as a result of lower cash deposit rates in Nigeria not now compensating for higher UK borrowing costs. Offsetting this, lower Nigerian profitability would lead to a lower minority interest in FY24, and all else being equal, a more stable tax rate for the group. We commented briefly this morning on group performance to date, which has been positive. with year-on-year growth in like-for-like revenue and a higher operating profit margin in constant currency. We've seen continued good revenue growth in Nigeria and Australia, very encouragingly a stable performance in the UK, but also a continued decline in Indonesia for the reasons I described earlier. And with that, I'll hand back to Jonathan for an update on the broader business and strategic progress.