REG - PZ CUSSONS PLC - Final Results <Origin Href="QuoteRef">PZC.L</Origin> - Part 1
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PZ CUSSONS PLC
29 July 2014
29 July 2014
FINAL RESULTS
FOR THE YEAR ENDED 31 MAY 2014
PZ Cussons Plc, a leading international consumer products group, announces its
final results for the year ended 31 May 2014.
Reported Results (before exceptional items1) Year ended31 May 2014 Year ended31 May 2013 % change
Revenue £861.4m £883.2m (2.5%)
Operating profit £116.4m £108.4m 7.4%
Profit before tax £115.0m £107.5m 7.0%
Adjusted basic earnings per share 17.96p 16.62p 8.1%
Statutory results
Operating profit £125.1m £95.7m 30.7%
Profit before tax £123.7m £94.8m 30.5%
Basic earnings per share 21.52p 14.75p 45.9%
Total dividend per share 7.76p 7.39p 5.0%
Net (debt)/funds2 (£29.4m) £3.4m
1 Exceptional items before tax (2014: income of £8.7m; 2013: costs of £12.7m),
are detailed in note 2.
2 Net (debt)/funds, above and hereafter, is defined as cash, short-term
deposits and current asset investments less borrowings (refer to note 10).
Highlights
Group
· Revenue growth in constant currency of 2% on prior year; in addition JV
revenue increasing by £172m
· Operating profit growth of 7% despite the impact of weakening
currencies
· Excluding the impact of exchange rates, operating profit would have
been 18% higher than prior year
· Rafferty's Garden acquisition completed early in the year for £42.2m in
cash
· Disposal of Polish Home Care brands completed in February for £46.6m in
cash
· Strong balance sheet with only a small net debt position at the end of
the year
· Total dividend increased 5% year on year being the 41st year of
consecutive year on year increases
Africa
· Operating profit growth in Nigeria despite increased levels of
disruption in the north of the country
· Revenue of African Food and Nutrition joint ventures reaches £260m
· PZ Wilmar joint venture performing well with refinery operating close
to capacity
· Good revenue and profitability growth achieved in the Nutricima joint
venture with Glanbia
Asia
· Revenue and profit growth achieved despite the significant impact of
weakening currencies
· Underlying performance in key markets of Australia and Indonesia
strong
· Rafferty's Garden acquisition marked the Group's entry into Food and
Nutrition in Asia
Europe
· Strong performance in UK Washing and Bathing division with all four
brands performing well
· Major relaunch of Imperial Leather range post year end
· St Tropez demand continues to be boosted by Kate Moss as brand
ambassador
· Good performance in smaller markets of Poland and Greece
Commenting today, Richard Harvey (Chairman) said:
"The Group has delivered a strong set of results with Sterling operating
profits 7% ahead of the prior year. This has been achieved despite a
significant weakening in currencies which impacted profits by circa £12m and
without which profits would have been 18% higher on prior year.
It has been particularly pleasing to see the progress of the palm oil joint
venture with Wilmar with the brands Mamador and Devon King's performing well
and the refinery operating close to capacity in its first full year of
operation.
During the year we acquired Rafferty's Garden and sold our Polish Home Care
brands as we continue to seek to focus the business on areas we perceive have
particularly high growth potential and where we can add substantial value. The
acquisition of Rafferty's Garden marked our entry into the Asian Food and
Nutrition category, a sector we believe is particularly exciting and where we
are developing plans for further growth. Having disposed of the Polish Home
Care brands we are now focussing on the Personal Care and Beauty business in
that region.
Our balance sheet remains strong and we have the appetite to pursue further
investment opportunities which fit our strategic aims.
The 5% increase in the Group's dividend marks the 41st year of consecutive
year on year increases.
Whilst trading conditions in most markets remain challenging, the Group
remains focussed on a dynamic and fast brand renovation and innovation
programme and successful delivery of new areas of growth such as Rafferty's
Garden and the Wilmar joint venture. These initiatives will help to offset the
continuing macro challenges, including foreign exchange volatility, and the
reduction in profits from Poland as a result of the strategic Home Care brands
sale.
Our overall performance since the year end has been in line with management
expectations."
Press Enquiries
PZ Cussons Brandon Leigh (Chief Financial
Officer)
Instinctif Partners Toby Bates / Tim Linacre
On 29, 30 and 31 July c/o Instinctif on 020 7457 2020.
After 31 July to Brandon Leigh on 0161 435 1236.
An analysts' presentation will be held on 29 July 2014 at 9.30am at the
offices of Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ.
There will be a live webcast of the presentation with Q&A facility beginning
at 9.30am which will also be available 'on demand' after the presentation has
finished. To register and access this webcast, please complete the form in the
link and click 'Register': http://webcast.instinctif.tv/795-1194-14572/en
Overview
Trading performance - overview
Operating profits increased 7.4% versus the prior year driven by underlying
revenue growth, improved margins and a profitable outturn from the PZ Wilmar
joint venture. This has been achieved despite a significant exchange impact of
circa £12m from the translation and transactional effect of weakening
currencies, in particular the Australian Dollar, Indonesian Rupiah and the
Ghanaian Cedi. Excluding this impact profits would have been 18% higher than
the previous year. Whilst trading conditions continue to be tough in most
markets, the Group's speed to market with brand innovation and renovation, as
well as a continuing focus on improving margins, has enabled another year of
profitable growth to be delivered.
Within Africa, Nigeria continues to be the largest market with the majority of
revenue and operating profit coming from that geography. Operating profit
growth was achieved in the year despite the significant ongoing disruption in
the north of the country and generally low levels of liquidity in the market.
With the new PZ Wilmar joint venture fully up and running, the Group now
benefits from significant category diversification with a spread of businesses
across Personal Care, Home Care, Electricals and now two joint ventures in the
Food and Nutrition category.
Underlying performance in Asia has been strong although the weakening in the
Australian Dollar and Indonesian Rupiah has impacted results in Sterling.
Regional results are ahead of the prior year as a result of the Rafferty's
Garden acquisition which contributed circa £19.6m and £2.2m to revenue and
operating profit respectively.
In Europe, a strong performance, in particular from the Washing and Bathing
division, resulted in higher operating profits versus the prior year. The sale
of the Polish Home Care brands resulted in revenue from that market being £24m
lower than the previous year, whilst profits were at a similar level as a
result of a strong performance pre-disposal.
The overall impact of exchange rate movements in the year resulted in a
decrease in Group revenue of circa £37m. The translational and transactional
impact of the exchange rate movements was to reduce profits by circa £5m and
£7m respectively, a total of circa £12m.
Financial position - overview
The Group's balance sheet remains strong with only a small net debt position
at the year end following £96.9m of cash generated from operations through
tight control of working capital.
Total capital expenditure of £33.0m comprises an underlying amount close to
depreciation levels relating to factory expenditure, plus a further amount for
the implementation of SAP and other IT infrastructure.
During the year £42.2m was spent in relation to the acquisition of Rafferty's
Garden and £46.6m was received in relation to the disposal of the Polish Home
Care brands.
Group structure and systems project
As announced in July 2013, a Group structure and systems project is under way
to realign the Group's non-manufacturing organisation design and to invest in
the latest systems technology. Good progress has been made during the year,
including changes to some of the Group's category and supply chain structures.
SAP has been selected as the Group's core system for the future and IBM have
been chosen as the external systems integrator. SAP will be implemented across
the Group phased by region over the next three years.
Regional reviews
Performance by region
Revenue (£m) Operating profit before exceptional items1 (£m)
2014 2013 2014 2013
Africa 361.3 362.7 40.2 37.4
Asia 184.4 174.9 19.3 18.4
Europe 315.7 345.6 56.9 52.6
Total 861.4 883.2 116.4 108.4
1 Exceptional items are detailed in note 2.
Africa
In Nigeria, unrest in the north of the country has continued with high levels
of disruption at various times during the year. This has made trade difficult
in the affected areas as distributors and consumers trade and shop more
cautiously. There is currently no indication that the levels of disruption
will ease in the short term and politically the country is now focussed on the
next presidential elections that are scheduled to take place in February 2015.
Economically, high interest rates have helped to maintain the stability of the
Naira to Dollar exchange rate although this has resulted in liquidity levels
in the market remaining tight. A new central bank governor took office in June
2014 and policies have continued to support the currency as long as foreign
exchange reserves are maintained at a sufficient level.
In Personal Care and Home Care, whilst volumes were higher year on year,
revenue and operating profit were slightly lower as a result of commodity
products, such as bulk detergents and laundry soaps, having to trade in an
extremely competitive environment. Competitors have been operating with high
levels of promotions in order to maintain share whilst cheap imports from Asia
have also affected market dynamics. Pleasingly, good growth has been achieved
in the value add part of the portfolio driven by a significant renovation
programme across brands such as Premier, Zip, Morning Fresh, Carex and Cussons
Baby. This innovation and renovation across the portfolio has helped to
maintain or grow the brands' number one or number two positions by market
share.
In the Electricals division, double digit revenue and profit growth has been
achieved with the Haier Thermocool brand performing extremely well in its 40th
anniversary year. The brand holds clear number one market share positions in
refrigerators, freezers and washing machines, and continues to be premium
priced with consumers recognising the product quality and after sales service
capability which remains ahead of that offered by the competition. The HT
Coolworld showrooms in Nigeria and Ghana continue to play an important role,
both as sales outlets, and as a showcase for the premium positioning of the
brand.
Revenue for the African Food and Nutrition joint ventures with Wilmar and
Glanbia grew to £260m. The palm oil joint venture with Wilmar has performed
very well, recording a small operating profit contribution, with the refinery
already operating close to capacity following its commissioning in January
2013. Good growth has been achieved in the consumer brands of Mamador and
Devon King's with the balance of output sold business to business. Nutricima,
the nutritional beverage joint venture with Glanbia, has seen double digit
revenue growth with strong performance from the key brands of Nunu, Coast,
Olympic and Yo. The business posted a profit for the year, ahead of the
breakeven position of the prior year, despite higher year on year milk costs.
Whilst local currency revenue growth in Ghana is ahead of the prior year,
profitability has been impacted by a significant weakening of the Cedi which
has devalued over 60% in twelve months. Brand shares remain healthy at number
one or two position across all four categories of Personal Care, Home Care,
Electricals and Food and Nutrition.
Revenue and profitability in Kenya are at similar levels to the previous
year.
Asia
In Australia, the underlying performance in the Home Care and Personal Care
portfolios has been strong, driven by innovative new product launches brought
quickly to market. Within Home Care, Morning Fresh has extended its number one
market share position in manual dishwash whilst Radiant laundry powder and
liquids have also grown versus the previous year. In Personal Care, the
Imperial Leather and Original Source ranges have been extended with new
variants and during the year Cussons Mum & Me was launched into selected
distribution channels. Beauty brands Fudge, St Tropez and Sanctuary have
performed particularly strongly in the Australian market during the year.
Rafferty's Garden, the Australian baby food business purchased in July 2013,
has performed well and is expected to be launched outside of Australia before
the end of the 2014 calendar year. All businesses have been impacted by higher
input costs as a result of the significant weakening in the Australian Dollar
which has also reduced results on conversion to Sterling.
In Indonesia, double digit local currency revenue growth has been achieved,
albeit at a lower rate than previous years as a result of the slowing macro
environment. Results have also been affected on conversion by the significant
weakening in the Rupiah. Cussons Baby, which accounts for approximately 80% of
Indonesian revenue, continues to perform extremely well reinforcing its market
leading position. The Imperial Leather range was relaunched during the year
with new bar and liquid soap products whilst Carex also delivered good growth.
The brand portfolio was also extended with the launch of Original Source into
modern trade distribution channels. Further progress was also made during the
year with distribution in other South East Asian territories.
Performance of the smaller businesses in Thailand and the Middle East were at
a similar level to the prior period.
Europe
In the UK Washing and Bathing division, all brands have performed well driven
by significant renovation and innovation programmes with over 70% of products
relaunched or refreshed in the year. This enables category growth plans to be
developed with the trade and new product news to be delivered to the consumer.
Highlights during the year include the relaunch of the premium Imperial
Leather Foamburst shower range with new imagery and fragrances, the extension
of the very successful Carex Kids handwash range to four variants and new
Original Source products including the launch of a Skin Quench moisturising
range. An exciting development for the new financial year is the major
relaunch post year end of the entire Imperial Leather portfolio with exciting
new products and fragrances tiered as Classic, Signature and Indulgence ranges
to cater for all price points and consumer needs. The Cussons Mum & Me range,
launched two years ago, was refined in the year to focus on the successful top
selling products and has been complemented by products for toddlers and young
children under the Little Explorers sub-brand. Product portfolios for all
brands have been optimised both for the big four supermarkets as well as
further increasing distribution in other channels.
In the Beauty division, whilst trading conditions in UK channels have been
challenging, overseas markets have been further developed during the year with
new distribution secured in the US, Canada and selected European countries.
Consumer demand for St Tropez has been boosted in all markets by Kate Moss as
brand ambassador, and the portfolios of all brands continue to be refreshed
with innovative new products. As part of the division's focus on its product
ranges, the Covent Garden spa and the three smaller boutique spas were closed
during the year.
In Poland, the sale of the Home Care brands completed in February 2014 with
£46.6m received in cash. Performance in the period was strong pre-sale for the
Home Care business and the focus is now on investing in and growing the
Personal Care brands of Luksja, Original Source and Carex.
Performance in Greece showed improvement versus the prior year as the economy
began to stabilise, and new product launches took place across the portfolio
of edible oils, cheeses and spreads.
Exceptional items
A net exceptional profit of £8.7m before tax was recorded during the year
(2013: charge of £12.7m). The exceptional profit relates to the profit in the
year recognised from the sale of the Polish Home Care brands (£30.6m)
partially offset by the cost of the supply chain optimisation project phase 1
and 2 (£13.0m), the current year cost of the Group structure and systems
project (£5.6m) and the cost of the Rafferty's Garden acquisition and
integration (£3.3m).
Taxation
The effective tax rate before exceptional items was 26.0% (2013: 26.5%) and is
lower principally due to decreased UK corporation tax rates.
Dividend
The Group aims to pay an attractive, sustainable and growing dividend. The
Board is recommending a final dividend of 5.23p (2013: 5.04p) per share making
a total of 7.76p (2013: 7.39p) per share for the year, a 5% increase and the
41st successive year of dividend increases.
The overall dividend remains some 2.3 times covered by adjusted earnings per
share. Subject to approval at the AGM, the final dividend will be paid on 1
October 2014 to shareholders on the register at the close of business on 15
August 2014.
Directors
James Steel, Senior Independent Director and Chairman of the Remuneration
Committee, will retire from the Board at the end of his term of office
immediately after the 2014 Annual General Meeting on 23 September. He will be
succeeded as Senior Independent Director by John Arnold and as Chairman of the
Remuneration Committee by Helen Owers. James has served as a Non-executive
Director since October 2005.
Outlook
Whilst trading conditions in most markets remain challenging, the Group
remains focussed on a dynamic and fast brand renovation and innovation
programme, an ongoing cost reduction programme and successful delivery of new
areas of growth such as Rafferty's Garden and the Wilmar joint venture. These
initiatives will help to offset the continuing macro challenges, including
foreign exchange volatility, and the reduction in profits from Poland as a
result of the Home Care brands sale.
The Group's balance sheet remains strong and well placed to pursue new areas
of growth.
The overall performance of the Group since the year-end has been in line with
management expectations.
Consolidated income statement for the year ended 31 May 2014
Year ended31 May 2014 Year ended31 May 2013
Before exceptional items Exceptional items(note 2) Total Before exceptional items Exceptional items(note 2) Total
Notes £m £m £m £m £m £m
Continuing operations
Revenue 1 861.4 - 861.4 883.2 - 883.2
Cost of sales (524.4) - (524.4) (548.9) - (548.9)
Gross profit 337.0 - 337.0 334.3 - 334.3
Selling and distribution costs (145.3) - (145.3) (133.6) - (133.6)
Administrative expenses (76.8) 8.7 (68.1) (90.2) (12.7) (102.9)
Share of results of joint ventures 1.5 - 1.5 (2.1) - (2.1)
Operating profit/(loss) 1 116.4 8.7 125.1 108.4 (12.7) 95.7
Finance income 2.6 - 2.6 2.7 - 2.7
Finance costs (4.0) - (4.0) (3.6) - (3.6)
Net finance costs 3 (1.4) - (1.4) (0.9) - (0.9)
Profit/(loss) before taxation 115.0 8.7 123.7 107.5 (12.7) 94.8
Taxation 4 (29.9) 4.9 (25.0) (28.5) 4.7 (23.8)
Profit/(loss) for the year 85.1 13.6 98.7 79.0 (8.0) 71.0
Attributable to:
Owners of the Parent 76.3 15.1 91.4 71.1 (8.0) 63.1
Non-controlling interests 8.8 (1.5) 7.3 7.9 - 7.9
85.1 13.6 98.7 79.0 (8.0) 71.0
Basic EPS (p) 6 21.52 14.75
Diluted EPS (p) 6 21.45 14.70
Adjusted basic EPS (p) 6 17.96 16.62
Adjusted diluted EPS (p) 6 17.91 16.56
Consolidated statement of comprehensive income for the year ended 31 May 2014
2014 2013
£m £m
Profit for the year 98.7 71.0
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Remeasurement of post-employment obligations (1.5) 0.4
Deferred tax on remeasurement of post retirement obligations 1.3 (0.1)
Total items that will not be reclassified to profit or loss (0.2) 0.3
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign operations (45.9) 11.5
Cash flow hedges - fair value (loss)/gain in year (1.5) 0.5
Tax on items that may be subsequently reclassified to profit or loss 0.1 (0.1)
Total items that may be subsequently reclassified to profit or loss (47.3) 11.9
Other comprehensive (expense)/income for the year net of taxation (47.5) 12.2
Total comprehensive income for the year 51.2 83.2
Attributable to:
Owners of the Parent 51.3 73.5
Non-controlling interests (0.1) 9.7
Consolidated balance sheet as at 31 May 2014
31 May 2014 31 May 2013
Notes £m £m
Assets
Non-current assets
Goodwill and other intangible assets 7 287.7 248.7
Property, plant and equipment 195.3 214.9
Other investments 0.3 0.5
Long term loans to joint ventures 45.8 42.3
Trade and other receivables 4.4 3.8
Retirement benefit surplus 38.3 38.9
571.8 549.1
Current assets
Inventories 162.2 168.4
Trade and other receivables 166.7 176.3
Current asset investments 19.1 10.4
Cash and cash equivalents 70.0 93.0
Current taxation receivable 13.1 9.5
431.1 457.6
Total assets 1,002.9 1,006.7
Equity
Share capital 4.3 4.3
Capital redemption reserve 0.7 0.7
Hedging reserve (1.1) 0.3
Currency translation reserve (0.4) 38.1
Retained earnings 480.5 437.3
Attributable to owners of the Parent 484.0 480.7
Non-controlling interests 52.4 65.6
Total equity 536.4 546.3
Liabilities
Non-current liabilities
Borrowings 103.5 85.0
Trade and other payables 0.7 0.5
Deferred taxation liabilities 41.8 46.6
Retirement benefit obligations 23.2 31.3
169.2 163.4
Current liabilities
Borrowings 15.0 15.0
Trade and other payables 222.4 232.3
Current taxation payable 46.8 36.5
Provisions 13.1 13.2
297.3 297.0
Total liabilities 466.5 460.4
Total equity and liabilities 1,002.9 1,006.7
Consolidated statement of changes in equity for the year ended 31 May 2014
Attributable to owners of the Parent
Currency Capital Non-
Share translation redemption Retained Hedging Controlling
capital reserve reserve Earnings reserve interests Total
£m £m £m £m £m £m £m
At 1 June 2012 4.3 28.4 0.7 425.0 (0.1) 61.2 519.5
Profit for the year - - - 63.1 - 7.9 71.0
Other comprehensive income
Remeasurement of post-employment obligations - - - 0.4 - - 0.4
Exchange differences on translation of foreign operations - 9.7 - - - 1.8 11.5
Cash flow hedges - fair value gains in year - - - - 0.5 - 0.5
Cash flow hedges - tax on fair value gains - - - - (0.1) - (0.1)
Deferred tax on actuarial gains on defined benefit pension schemes - - - (0.1) - - (0.1)
Total comprehensive incomefor the year - 9.7 - 63.4 0.4 9.7 83.2
Other comprehensive income
Ordinary dividends - - - (29.3) - - (29.3)
Acquisition of shares for ESOT - - - (15.0) - - (15.0)
Share based payments credit - - - (0.6) - - (0.6)
Deferred tax on share based payments - - - 0.4 - - 0.4
Acquisition of non-controlling interests - - - (6.6) - (2.9) (9.5)
Non-controlling interests dividend paid - - - - - (2.4) (2.4)
Total transactions with owners recognised directly in equity - - - (51.1) - (5.3) (56.4)
At 31 May 2013 4.3 38.1 0.7 437.3 0.3 65.6 546.3
At 1 June 2013 4.3 38.1 0.7 437.3 0.3 65.6 546.3
Profit for the year - - - 91.4 - 7.3 98.7
Other comprehensive income
Remeasurement of post-employment obligations - - - (1.5) - - (1.5)
Exchange differences on translation of foreign operations - (38.5) - - - (7.4) (45.9)
Cash flow hedges - fair value losses in year - - - - (1.5) - (1.5)
Cash flow hedges - tax on fair value losses - - - - 0.1 - 0.1
Deferred tax on actuarial loss on defined benefit pension schemes - - - 1.3 - - 1.3
Total comprehensive incomefor the year - (38.5) - 91.2 (1.4) (0.1) 51.2
Transactions with owners:
Ordinary dividends - - - (32.2) - - (32.2)
Acquisition of shares for ESOT - - - (16.1) - - (16.1)
Share based payments charge - - - 0.7 - - 0.7
Deferred tax on share based payments - - - 0.2 - - 0.2
Acquisition of non-controlling interests - - - (0.6) - (0.2) (0.8)
Non-controlling interests dividend paid - - - - - (12.9) (12.9)
Total transactions with owners recognised directly in equity - - - (48.0) - (13.1) (61.1)
At 31 May 2014 4.3 (0.4) 0.7 480.5 (1.1) 52.4 536.4
Consolidated cash flow statement for the year ended 31 May 2014
2014 2013
£m £m
Cash flows from operating activities
Cash generated from operations 96.9 119.2
Taxation paid (19.9) (16.1)
Interest paid (4.0) (3.6)
Net cash generated from operating activities 73.0 99.5
Cash flows from investing activities
Interest income 2.6 2.7
Purchase of property, plant and equipment (33.0) (23.1)
Proceeds from sale of Polish Home Care brands 46.6 -
Cash costs of sale of Poland (6.2) -
Proceeds from sale of property, plant and equipment 1.1 1.0
Acquisition of non-controlling interests (0.8) (9.5)
Cash and cash equivalents obtained from acquired business 1.3 -
Acquisition of Rafferty's Garden (42.2) -
Advance of short-term deposits to joint ventures (8.7) (3.4)
Loans granted to joint ventures (4.3) (5.2)
Net cash used in investing activities (43.6) (37.5)
Financing activities
Dividends paid to non-controlling interests (12.9) (2.4)
Purchase of shares for ESOT (16.1) (15.0)
Dividends paid to Company shareholders (32.2) (29.3)
Repayment of term loan (15.0) (3.8)
Increase in borrowings 33.5 13.0
Net cash used in financing activities (42.7) (37.5)
Net (decrease)/increase in cash and cash equivalents (13.3) 24.5
Cash and cash equivalents at the beginning of the year 93.0 65.9
Effect of foreign exchange rates (9.7) 2.6
Cash and cash equivalents at the end of the year 70.0 93.0
Reconciliation of profit before tax to cash generated from operations
for the year ended 31 May 2014
2014 2013
£m £m
Profit before tax 123.7 94.8
Adjustment for net finance expense 1.4 0.9
Operating profit 125.1 95.7
Depreciation 19.9 20.3
Impairment loss of tangible fixed assets 9.1 1.6
Profit on sale of Poland Home Care brands (30.6) -
Profit on sale of tangible fixed assets (0.1) (0.2)
Pension scheme contributions paid (7.7) (6.4)
Net pension charge for the year 0.6 0.9
Share of results from joint ventures (1.5) 2.1
Share based payments charge/(credit) 0.7 (0.6)
Operating cash flows before movements in working capital 115.5 113.4
Movements in working capital:
Inventories (14.1) 8.6
Trade and other receivables (5.9) (35.0)
Trade and other payables 0.2 37.3
Provisions 1.2 (5.1)
Cash generated from operations 96.9 119.2
1 Segmental analysis
2014 Africa£m Asia£m Europe£m Eliminations£m Total£m
Gross segment revenue 373.6 199.3 474.3 (185.8) 861.4
Inter segment revenue (12.3) (14.9) (158.6) 185.8 -
Revenue 361.3 184.4 315.7 - 861.4
Segmental operating profit before exceptional items and share of results of joint ventures 38.7 19.3 56.9 - 114.9
Share of results of joint ventures 1.5 - - - 1.5
Segmental operating profit before exceptional items 40.2 19.3 56.9 - 116.4
Exceptional items (5.3) (6.6) 20.6 - 8.7
Segmental operating profit 34.9 12.7 77.5 - 125.1
Finance income 2.6
Finance cost (4.0)
Profit before taxation 123.7
Depreciation and amortisation 8.6 3.0 8.3 - 19.9
Impairment 4.4 - 7.9 - 12.3
2013 Africa £m Asia £m Europe £m Eliminations £m Total £m
Gross segment revenue 366.7 191.5 489.2 (164.2) 883.2
Inter segment revenue (4.0) (16.6) (143.6) 164.2 -
Revenue 362.7 174.9 345.6 - 883.2
Segmental operating profit before exceptional items and share of results of joint ventures 39.5 18.4 52.6 - 110.5
Share of results of joint ventures (2.1) - - - (2.1)
Segmental operating profit before exceptional items 37.4 18.4 52.6 - 108.4
Exceptional items (0.6) (3.3) (8.8) - (12.7)
Segmental operating profit 36.8 15.1 43.8 - 95.7
Finance income 2.7
Finance cost (3.6)
Profit before taxation 94.8
Depreciation and amortisation 8.3 3.4 8.6 - 20.3
Impairment - - 1.6 - 1.6
8.6
-
20.3
Impairment
-
-
1.6
-
1.6
2 Exceptional items
The Group adopts a columnar income statement format to highlight significant
items within the Group's results for the year. Such items are considered by
the Directors to be exceptional in nature rather than being representative of
the underlying trading of the Group, and may include such items as
restructuring costs, acquisition related costs, material impairments of
non-current assets, material profits and losses on disposal of property, plant
and equipment, brands, material pension settlements and amendments and profit
or loss on disposal or termination of operations. The Directors apply
judgement in assessing the particular items, which by virtue of their scale
and nature should be disclosed in a separate column of the income statement
and notes to the financial statements as 'Exceptional items'. The Directors
believe that the separate disclosure of these items is relevant to an
understanding of the Group's financial performance.
Exceptional items before Exceptional items after
Year to 31 May 2014 taxation Taxation taxation
Exceptional items included within operating profit: £m £m £m
Group structure and systems project 5.6 (1.4) 4.2
Supply chain optimisation phase 1 2.0 (0.4) 1.6
Supply chain optimisation phase 2 11.0 (1.7) 9.3
Polish Home Care brands profit on divestment (30.6) 3.3 (27.3)
Rafferty's Garden Acquisition & Integration Costs 3.3 (0.4) 2.9
Deferred tax benefit of reduction in UK Corporation tax rate principally relating to brands - (4.3) (4.3)
(8.7) (4.9) (13.6)
Exceptional items before Exceptional items after
Year to 31 May 2013 taxation Taxation taxation
Exceptional items included within operating profit: £m £m £m
Supply chain optimisation phase 1 8.9 (2.4) 6.5
Boutique spas closure 3.8 (0.9) 2.9
Deferred tax benefit of reduction in UK Corporation tax rate principally relating to brands - (1.4) (1.4)
12.7 (4.7) 8.0
Explanation of exceptional items
Year to May 2014
Group structure and systems project
The Group has incurred exceptional costs of £5.6m relating to the project to
realign the non-manufacturing organisation design to create a more effective
Group operating model. These costs mainly consist of restructuring and
advisory costs.
Supply chain optimisation phase 1
The Group has incurred exceptional costs of £2.0m relating to restructuring
costs associated with the completion of the supply chain optimisation project
that was initiated in the year to 31 May 2012. The program has been completed
on budget early in this financial year, and the realisation of the benefits
remains in line with previous expectations.
Supply chain optimisation phase 2
During the supply chain optimisation programme further opportunities to reduce
the Group's supply chain cost base were identified and a further exceptional
charge of £20m is forecast to be taken in the current and next financial year
in respect of this extended programme. The costs relate to restructuring costs
associated with supply chain optimisation and impairment costs associated with
the write-down of supply chain assets.
Polish Home Care brands profit on divestment
The Group has sold its Polish Home Care brands for £46.6m cash consideration.
The costs associated with the divestment include restructuring costs and asset
impairment as set out in note 9.
Rafferty's Garden Acquisition & Integration Costs
During the year the Group acquired the entire share capital of Rafferty's
Garden Pty Limited. The Group incurred acquisition related costs and
integration/restructuring costs of £3.3m, as a result of integrating the
business into existing operations.
Deferred tax benefit of reduction in UK Corporation tax rate principally
relating to brands
The UK corporation tax rate reduces to 20% from 1 April 2015. As a result of
this change, the deferred tax balances relating to UK assets and liabilities
were reduced to take account of the substantively enacted rate change. The
largest single effect of the rate change was in relation to the deferred tax
liabilities recognised when the Sanctuary, St Tropez and Charles Worthington
brands were acquired and this is disclosed as an exceptional item due to its
size and the fact that it relates to previous acquisitions.
Year to May 2013
Supply chain optimisation phase 1
The Group incurred exceptional costs of £8.9m relating to continuing
restructuring costs associated with the supply chain optimisation project that
was initiated in the year to 31 May 2012. This included some initial costs in
relation to the Group structure and systems project.
Boutique spas closure
The Group decided to close the boutique spas to concentrate on product sales
within the Beauty division. The exceptional costs included a £1.6m impairment
of boutique spa related assets with the remainder consisting of restructuring
costs.
Deferred tax benefit of reduction in UK Corporation tax rate principally
relating to brands
The UK corporation tax rate reduced to 23% from 24% on 1 April 2013. As a
result of this change, the deferred tax balances relating to UK assets and
liabilities were reduced to take account of the substantively enacted rate
change. The largest single effect of the rate change was in relation to the
deferred tax liabilities recognised when the Sanctuary, St Tropez and Charles
Worthington brands were acquired and this is disclosed as an exceptional item
due to its size and the fact that it relates to previous acquisitions
3 Net finance expense
2014£m 2013£m
Finance income:
Investment gains 0.1 0.1
Interest receivable 2.5 2.6
Interest income 2.6 2.7
Interest expense:
Interest payable on bank loans and overdrafts (4.0) (3.6)
Net finance expense (1.4) (0.9)
4 Taxation
2014£m 2013£m
Current tax
UK corporation tax charge for the year 4.8 5.1
Adjustments in respect of prior years - (0.7)
4.8 4.4
Overseas corporation tax charge for the year 22.0 21.9
Adjustments in respect of prior years - (0.2)
22.0 21.7
Total current tax charge 26.8 26.1
Deferred tax
Origination and reversal of temporary timing differences (1.5) (2.5)
Adjustments in respect of prior years (0.3) 0.2
Total deferred tax credit (1.8) (2.3)
Total tax charge 25.0 23.8
UK corporation tax is calculated at 22.67% (2013: 23.83%) of the estimated
assessable profit for the year. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
Taxation on items taken directly to equity was a credit of £1.6m (2013: £0.2m
credit) and relates to deferred tax on pensions, share option schemes and
financial derivatives recognised in the hedging reserve.
The tax charge for the year can be reconciled to the profit per the
consolidated income statement as follows:
2014 £m 2013 £m
Profit before tax
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