Profits slip away at PZ Cussons

Posted on 24 Jan 2012

The soap-maker’s profit before tax fell by 13% for the six months ending on 30 November 2011, compared with the same period in 2010.

PZ Cussons announced that profits fell from £46.2m to £40.2m in its interim report released 24 January 2012, despite a 10.5% rise in revenue from £364.8m to £414m.

PZ Cussons’ chairman Richard Harvey, said: “Overall, we anticipate that results for the full year will be towards the bottom end of the range of current expectations.”

Although production levels increased at the soap and toiletries firm, which has a large factory in Manchester, profit margins were squeezed by rising costs of raw materials, adverse exchange rate movements and challenging trading conditions in other markets.

Overall impact of rises in key raw materials was an added cost of approximately £20m in the period. Between the first half of 2011 and second, the price of sodium lauryl ether sulphate (SLES) and Tallow, which are both found in many personal care products such as soaps and shampoos, rose by up to 28%.

Overall exchange rate impact for the group resulted in a decrease in revenue and profitability of £8m and £1.1m.

Richard Harvey, commented: “We anticipate trading conditions in some markets will continue to be difficult for the remainder of the year. In particular, we are closely monitoring the current economic and social tensions in Nigeria which may further impact the year-end outturn.”

Nigeria, along with Indonesia and the UK, is a core market for the company. The recent upheaval in the country has been caused by the government’s decision to reduce fuel subsidies. This led to civil disruption during January and a week long national strike that affected production in all factories and sales on a national level, during what is a peak trading period.

The company is currently constructing a palm oil refinery with Wilmar, the Asian agriculture group, in Nigeria which is on schedule for completion by the end of 2012. The company has said that palm oil, which is an ingredient in many processed foods, is a major opportunity for the company.

PZ Cussons acquired the Fudge hair care brand for £25.5m as part of its strategy to acquire leading brands today. It widens the number of brands within its newly formed beauty division, an area which PZ Cussons’ hopes to strengthen its market share.

The company, which purchased the tanning brand St Tropez in early 2011, reported a strong balance sheet and declared it has the appetite to pursue further investment opportunities.