Soap maker PZ Cussons sees shares slip

By This Is Money
Updated: 10:09 EDT, 25 January 2011

Shares in soap firm PZ Cussons fell 7% after it admitted to feeling the impact of ingredient cost rises and challenging trading conditions.

Price cutting: Soap maker is facing intense competition in the UK

Its UK business is facing heavy promotional activity from rivals, especially on shower gel and handwash products.

The price of palm oil, which is used in many of its products, has shot up, and meanwhile it faces consumer belt-tightening across key UK and European markets.

The stock slid 26.7p to 352.5p.

The Imperial Leather owner reported a 5% fall in European operating profits to £23.7m in the six months to November 30 - a decline also driven by the eurozone debt crisis.

But the group said underlying profits rose 3.4% to £46.2m as a stronger Asian market offset the European woes.

Asian operating profits rose to £8.6m from £6.1m a year earlier, while earnings largely held firm in Africa at £13.7m.

Chairman Richard Harvey said continued 'renovation' of the brand portfolio meant the firm was still trading competitively and it was focused on further margin improvements in all territories. Against this backdrop and based on recent trading, full-year expectations were still broadly in place.

But he added: 'We remain cautious about the trading environment for the remainder of the year, given continued high levels of promotional activity, particularly in the UK; a challenging outlook for the consumer in a number of markets; global increases in a number of commodity costs; and potential disruption to trading from the Nigerian election process.'

PZ Cussons is feeling the effects of a crude oil price bubble, which is sending the cost of related products such as palm oil surging. Bad weather in Asia has impacted palm oil crop supply, according to the group.

But finance director Brandon Leigh said there were signs costs were now reaching their peak.

He added the firm's premium brands, such as Charles Worthington and The Sanctuary, were faring better in the UK than the core personal care ranges, with less promotional pressure.

PZ Cussons recently added tanning lotion company St Tropez to the stable after buying the firm last September.

Broker Panmure Gordon cut expectations for full-year pre-tax profits to £113m from £117m.

'The outlook for the year is "broadly in line with expectations", but with raw materials having continued to rise and the consumer environment remaining difficult, we feel it is prudent to trim our full-year profit forecast,' it said.