PZ Cussons plc (PZC) Earnings Call Transcript & Summary

Good morning, and welcome to PZ Cussons full year results presentation. In a moment, you'll hear a short presentation from CEO, Jonathan Myers; and CFO, Sarah Pollard, after which they'll be happy to take your questions. [Operator Instructions] But first to the presentation and Jonathan.

So good morning, all. Thanks for finding the time to join us today. I'm Jonathan Myers, Chief Executive Officer of PZ Cussons Plc. And I'm on the call here with Sarah Pollard, Chief Financial Officer. And together, we're looking forward to providing you with an update on our results and overall progress. So moving to Slide 3. You'll see that today, we're announcing full year results for our financial year 2021, which ended in May, as well as providing a trading update on the first quarter of our current financial year, which ended in August. Sarah will take you through those in a moment, then I'll provide an assessment of progress against our new strategy before we open up to you for questions. To start with though, I'd like to move to Slide 5 and provide a few key messages. As we look back on the first year of our new strategy, it's good to report that we've delivered a solid financial performance, returning to top and bottom line growth for the first time in 7 years, quickly getting Africa back into profitability and maintaining strong balance sheet discipline. It was certainly a year of volatility and uncertainty as we all navigated the impact of COVID, during which we saw some of our main selling channels curtailed, such as hair salons and department stores in developed markets or traditional bazaars in emerging markets. We also saw surges in demand as consumers reached for their most trusted hygiene brands, contributing to the plus 23% revenue growth reported in the first quarter of our 2021 financial year. At the same time, we made progress executing our new strategy, building brands for life, today and for future generations. We focused significantly increased investment behind our core Must Win Brands in our top 4 priority markets and refined our portfolio further with the sale of our noncore five:am yogurt business in Australia following the earlier divestiture of the Nutricima milk business in Nigeria. While we're pleased with progress, we are also keeping our feet firmly on the ground. We're only at the start and we have much to do. We're maintaining increased levels of investment even as we, along with others in the consumer goods sector and beyond, work to mitigate the significant inflationary pressures in raw materials and logistics costs as well as minimize disruption from pressures in the supply chain. We're acting with a sense of urgency to reduce costs that consumers do not value and execute selected price increases and price/mix improvements as part of our step-up in revenue growth management capabilities. The additional challenge for us is cycling through the unprecedented base period effects of the height of the pandemic, which has meant a challenging comparison for us as we enter our new financial year from June. It's difficult to see a minus 9% revenue number in our first quarter after a year of growth, but it's not a surprise given the tough comps. And on a 2-year basis, it represents plus 13% growth with our Must Win Brands driving that longer-term momentum at plus 23%. So we remain confident that as we cycle through the base period effect, our current performance and more normalized hygiene brand run rates will see a return to growth for the overall business, and this will be another year of progress against our strategy to deliver sustainable, profitable revenue growth. Importantly, we also have the financial flexibility to continue to invest in the business and maintain a sustainable dividend for our shareholders. To that end, the Board have recommended an increased final dividend, bringing full year dividend growth to plus 5% versus the previous year. I'll come back later with some further comments, but for now over to Sarah for a more detailed look at our results.

Thanks, Jonathan. Turning to Slide 7. Let me start with the key financial headlines for FY '21, namely the drivers behind our growth in adjusted earnings per share and the dividend increase. Adjusted profit before tax was GBP 68.6 million, an increase of 11% driven by broad-based revenue growth, higher operating margin and a reduced interest charge as we successfully repatriated cash from Nigeria, allowing us to pay down group borrowings in the U.K. Adjusted basic EPS, as I mentioned, was up 8%. Our tax charge was lower in the year due to a reassessment of uncertain tax positions, but this was more than offset by a reduction in the losses attributable to minority interests. We did report a noncash statutory loss after tax in the year of GBP 16.6 million due to the recycling of historical FX into the P&L as we disposed of our loss-making Nigerian milk business, Nutricima. Continued balance sheet discipline saw our net debt closed at GBP 31 million, lower than the prior year. The Board is pleased to recommend an increase in the final dividend for a total of 6.09p in the year, an increase of 5%. And this increase reflects the Board's confidence in the group's financial resilience and future growth prospects. It is worth noting before I continue that these results are unaudited but will be signed off later this week. There will be no change to the reported numbers. We experienced some delays in the Nigeria audit due to cases of COVID-19 and just need a short while longer for the final checks to the full annual report. Slide 8 then takes a closer look at some of the operational drivers behind our improved profitability and cash position. Revenue of GBP 603 million represented a like-for-like growth of 7% in the year, with all regions and our core categories of hygiene, baby and beauty all in growth. Once again, our Must Win Brands were the drivers of that growth, up 11%, with all but one growing. And Jonathan will take you through the details a little later. Our Portfolio Brands also grew up 3%, with the Electricals business in Nigeria recovering strongly. Even after allowing for a sizable increase in marketing investment behind our Must Win Brands underpinning our new strategy, operating margin moved up 60 basis points, driven by price/mix improvements in all our core categories. Free cash flow conversion in the year was a creditable 70%, and I'll take you through the drivers in more detail later. First though, a look at our regional performance, starting with Europe and Americas on Slide 9. Strong demand for hygiene products was complemented by strong revenue growth in our beauty business through the second half of the year, resulting from increased brand investment, successful marketing activations and improved distribution. Revenue growth of 5% was driven by significant growth in St. Tropez, supported by the successful Ashley Graham influencer campaign in the U.S. and Sanctuary Spa, which has seen strong e-commerce performance. Carex revenue grew strongly versus the prior year despite the comparison with the start of the COVID-19 pandemic in the final quarter of FY '20 with continuing demand for both hand sanitizer and hand wash. And despite increased competitor activity, Carex remains the U.K. market leader with a 36% share of that combined category. Revenue from Original Source and Imperial Leather declined in the year due to the softness in the shower category since the beginning of the COVID lockdowns and some deliberate production choices to protect Carex supply. Gross margin was up from favorable product and market mix in beauty. Operating margin was down however but due to the significantly increased must-win brand marketing investments enabling, for example, the strong Carex revenue growth and an increase in the brand's spontaneous awareness. Turning now to Slide 10 and our Asia Pac region, which saw revenue growth of 2% across both our key markets of Indonesia and Australia and New Zealand. Both our Must Win Brands grew, Cussons Baby and Morning Fresh. Cussons Baby remains a market leader due to maintained brand investment and the relaunch of our baby powder product range. Morning Fresh in Australia increased its market share, was back on TV with a new advertising campaign after 4 years and launched new innovations into adjacent kitchen hygiene categories. Adjusted operating margin improved due to cost savings from head office restructuring in both Indonesia and Australia plus the switching to a distributor model in New Zealand. Reported operating profit of GBP 21 million compares with a loss in the prior year due to the impairment of the five:am and Rafferty’s Garden brands in Australia. We disposed of the five:am yogurt business on the 4th of June, further narrowing our food and nutrition portfolio. Moving to Slide 11. Revenue in Africa was GBP 193 million, up 16% at constant currency with growth across all of Nigeria, Kenya and Ghana. All Must Win Brands, namely Morning Fresh, Premier, Joy and Cussons Baby, grew revenue versus the prior year. Morning Fresh and Joy also increased their market share. We also saw revenue growth across most Portfolio Brands and with Electricals and Stella, a skin care cream, in double-digit growth. Our African markets reported their first ever loss in the financial year to May 2020. In FY '21, we were able to quickly return the business to profit with an operating margin of 5.6%. This was driven by shifting our portfolio focus to our more profitable core brands, successfully executing price increases and cost savings from the simplification program. Our palm oil joint venture, PZ Wilmar, also improved its profitability. And Devon King's and Mamador are the #1 and #3 brands in the cooking oil market, respectively. Reported operating profit of GBP 9 million compares to a loss of GBP 3 million in the prior year. The adjusting items in the FY '21 financial year relate to the ongoing simplification initiatives. In the prior year, they relate primarily to accounting for investment properties in Ghana. As I mentioned, we disposed of Nutricima, our milk business, in September of 2020. We did face into some FX headwinds in the year with the devaluation of the naira holding back revenue growth in reported currency to 3%. Moving now to overall business performance on Slide 12 and price/mix. Now you've heard us talk about our focus here, building the capabilities to take price increases, drive brand equity improvements to encourage consumers to trade up and utilize more efficient levels of price promotion, all of which should nudge up gross margins. And we saw price/mix improvements in each of our core categories in FY '21. Some notable examples include Cussons Baby in Indonesia, driving growth in higher-margin segments, and our beauty brand, Sanctuary Spa, improving both product mix driven by the wellness segment and channel mix in e-commerce. Price/mix is one key component to protect or enhance our margins, as I'll come on to on the next slide. Our operating margin was up 60 basis points, driven by gross margin expansion due to the price/mix improvements I just called out. Actually, underlying gross margins were better still, partially offset by our decision to buy U.S. dollars in Nigeria beyond the in-year cost of goods requirement to pay down some historical intercompany debt and so repatriate cash to the U.K. We constrain the rate of overhead growth to be lower than the rate of sales growth, in line with our strategic financial, framework, even after allowing for the reinstatement of a bonus for many employees for the first time in some years. This was more than offset by cost savings from restructurings, the streamlining of office costs and some COVID-related travel savings and together allowed for a substantial increase in marketing investments behind our Must Win Brands. Our palm oil JV with Wilmar in Nigeria, although not a core category, has reported increased profitability versus the prior year. A word here on central costs, which we reported separately for the first time as our FY '21 interim results. They would historically have been reported in our Europe and Americas segment, but they represent investments incurred on behalf of all of our markets. For example, investments in resources and capabilities to develop, deploy and deliver against our new strategy, including revenue growth management and digital. In addition, the costs include the reinstatement of the bonus for our group employees for the first time in some years. Central costs also include some global business units, for example our fragrance house, Seven Scent, and our procurement hub in Singapore. Notably, in FY '21, certain restrictions imposed by the Nigerian government and the Central Bank prevented us fully utilizing these internal services. And as such, they were loss-making in the year. Let's turn now to how we've converted profit into cash flow and our resulting net debt on the next slide, Slide 14. Continued balance sheet discipline provides us the flexibility for future investment. Net debt reduced from GBP 49 million to GBP 31 million, driven by strong operating cash flow and the proceeds from the sale of Nutricima. Working capital in the year was a modest cash outflow. Good progress in reducing stock levels in our African business and improved debtor collection in both Asia and Africa were offset by us opting to cease unnecessary and expensive vendor financing arrangements in some markets for a lower interest charge. And our election to repay early the U.K. government VAT relief extended to all U.K. businesses at the end of FY '20. And had it not been for these factors, our free cash flow conversion would have been up closer to 100%. CapEx in the year was GBP 9 million. We plan to increase our future investment levels to be more in line with consumer goods industry norms to around 2.5% of revenue as we invest to unlock future growth capacity, drive manufacturing productivity savings and support our sustainability and people strategies. We will also continue with essential maintenance spend in our emerging markets to ensure we safeguard employee safety in all of our factories. We paid out GBP 20 million in cash taxes in FY '21. We expect our effective tax rate to hold constant over the next 2 years before we feel the sizable impact of the U.K. corporation tax rate increase from FY '24. Net financing costs were down year-on-year to GBP 2.4 million, excluding the impact of IFRS 16 lease accounting. Summing up then on the next slide. Our FY '21 financial performance was in line with the strategic financial framework we shared at our Capital Markets Day in March. Revenue growth driven by price/mix improvements plus additional cost-saving initiatives in our supply chain allowed gross margins to expand. Coupled with restraint in overheads, this enabled increased marketing investment behind our brands, which in turn will fuel sustainable, profitable revenue growth in the future. Adjusted earnings per share increased and we increased the dividend. We are pleased with that performance, representing as it does the first year of our new strategy, building brands for life, today and for future generations. It also reflects the unprecedented demand we saw for hygiene products and with unusually low levels of price promotional intensity particularly at the height of the COVID-19 pandemic in the first quarter of our last financial year. So turning now to the first quarter of our current financial year on Slide 17. As expected, unprecedented demand for our hygiene brands at the beginning of the pandemic have impacted year-on-year revenue comparisons in the first quarter of our new financial year. Our 2-year revenue grew 13%, with growth across each of our core categories of hygiene, baby and beauty and again in all regions. On a 1-year basis, the revenue decline of 9%, driven by hygiene, contrast with the 23% total business growth in the first quarter of the prior year. We remain confident in the outlook for our business and in the response of our Must Win Brands to marketing investment as we continue to invest behind them in Q1. This 20% increase, continued future investment and now our new marketing effectiveness capabilities will continue to fuel future brand momentum. Net debt reduced further in the quarter down to GBP 23 million due in large part to the proceeds from the five:am yogurt disposal, further narrowing our food and nutrition portfolio. So let's look at the Q1 revenue performance in a little more detail on the next slide. Our Must Win Brands continued their strong momentum, up 23% on a 2-year basis with Carex up 40%. Their overall 1-year decline of 20% was entirely driven by the normalization of demand in the hand hygiene category. And excluding Carex, Must Win Brands grew 4%. Consumer hygiene behaviors are continuing to evolve, and one of the ways we're responding to this is by expanding our convenience distribution to enable consumers to always carry Carex on the go. Turning back to the overall business, performance improved as the first quarter progressed, and we returned to growth in August. And assuming no further disruptions, we expect to be back in growth from Q2. Let's look a little further out on Slide 19. Like many in the consumer goods sector, we're facing into significant commodity and freight cost headwinds. And we estimate a 9% to 10% increase in our FY '22 cost of goods as a result. Materials and product costs make up the majority of our cost of goods, some 3/4 or so. Palm oils, which are both a raw material and also the feedstock for oleochemicals, the main source of surfactants used in our soap products, and resins for our bottles are all experiencing double-digit cost increases. The cost of shipping from our manufacturing base and finished goods suppliers in Asia is also up year-on-year. We've been able to hold our factory conversion costs flat, with salary inflation being offset by cost-saving initiatives. We're busy working up any contingency plans that might prove necessary to protect supply of our very important Christmas gifting season. What self-help then are we embarking on to protect our margins and remain attractive in the eyes of our retailers, distributors and consumers, one of the building blocks, of course, of the PZ Cussons growth wheel? Let's move to Slide 20. We have a coordinated effort underway to reduce product, manufacturing and logistics costs that the consumer doesn't value while also accelerating our revenue growth management plans to drive price/mix. We've successfully executed price increases across our brand portfolios in both Nigeria and Indonesia. In our developed markets, in addition to more selective price increases, our revenue growth management focus has been to drive brand equity improvements, create tiered portfolios to encourage consumers to trade up in exchange for added value brand benefits, maximize our product mix and also to target more efficient levels of price promotional activity and otherwise optimize our trade terms. Turning now to our outlook for this financial year on Slide 21. Assuming no further disruption, we're expecting a return to revenue growth from Q2, building on the momentum we saw in the first month -- in the final month, sorry, of the first quarter now that we have moved through the base impact at the peak of the COVID-19 pandemic. But we are facing into continued volatility in the markets in which we operate both from global supply and other COVID-related disruptions. We continue to navigate the well-publicized inflationary pressures on both commodities and freight, both reducing our internal cost base and driving price/mix improvements. We increased marketing investment behind our brands in Q1, coupled with new capabilities to improve the effectiveness of and so return on that investment. FY '22 will be another year of progress in our turnaround of the business to sustainable, profitable revenue growth. And assuming no further disruptions, we expect to deliver low to mid-single-digit revenue growth for the full year, in line with the strategic financial framework we outlined at the Capital Markets Day in March. Despite the significant inflationary pressure on our cost base, assuming no further cost headwinds or global supply or other COVID disruption, we expect to deliver FY '22 adjusted profit before tax within the current range of expectations. And with that, I'll hand back to Jonathan.

Thanks, Sarah. And now moving to Slide 22. I'll take a step back to provide more detail on the progress we're making against our strategy and, importantly, reflect on how we're aiming to deliver for all stakeholders. So moving to Slide 23. It's always been part of our DNA to do the right thing for all involved in our business and even more so over the past year, during which so many around the world have experienced difficulties. It's also important to us now that we have set out to achieve B Corp certification in the future. Of course, we want to continue to deliver improved returns for our shareholders, and we will do that by serving more consumers and doing so better than our competition. But it also means promoting the safety and well-being of our employees and their families as well as playing our part in the communities in which we live and work. Over the past 18 months, these efforts have included the provision of COVID testing and, in some countries, vaccinations too, as well as ensuring those that need to come to factories or offices to work could do so safely while also enabling many to make the transition to working from home smoothly and effectively, seeking to promote their mental as well as physical well-being. And this has meant that our employees have been able to go beyond the day job to take the lead on our volunteering efforts, contributing hygiene and beauty products to key workers and supporting local food banks for those experiencing economic difficulties. In the U.K., for example, we donated more than 1 million bottles of Carex to NHS and other key workers. I've been very proud of how the entire PZ Cussons organization has responded in such challenging times, and I offer my thanks and appreciation to them. Of course, at the same time, we have been charting the turnaround of our financial performance. And moving to Slide 24. We have worked hard through this period of uncertainty to set out our new strategy and get on with the initial stages of execution, building brands for life, today and for future generations. As we presented to you at our Capital Markets Day in March, we have a clear road map of how we are going to get this business back to sustainable, profitable revenue growth. We're clear on which categories are at our core, hygiene, baby and beauty; and which brands represent our priority, our 8 Must Win Brands, which represent more than half of our sales and 3/4 of our gross profit. Geographically, our current focus is clear. Our top 4 markets of the U.K., Australia, Indonesia and Nigeria plus the U.S. for St. Tropez. Together, they represent more than 90% of net sales. As we'll see in a moment, we've adopted a consistent framework to drive the business on our Must Win Brands. That's the PZ Cussons growth wheel. And then we have a number of focus areas that are critical for us to deliver against to enable execution of the strategy, including sustainability, culture, leadership, capabilities and, very importantly, the need for dramatic simplification of the legacy complexity we are dealing with in our operations, especially in Nigeria. So moving to Slide 25. Let's take a look then at the performance of our Must Win Brands. And as with our geographic results in FY '21, we saw broad-based momentum across our 8 Must Win Brands, 3 of which are sold in more than 1 of our priority markets, hence the 11 ticks or crosses on the slide you see and all but one were in revenue growth. And taken as a whole, they grew 11% in the year, with some notably higher than that, reassurance for us that the focus on our core is working and responding to investment. We did though see minor decline, low single digit, on one brand, Original Source, in the U.K. It was a year when we prioritized display support for Carex over Original Source and the shower gel category declined as a whole while we all stayed locked down at home. And as I'll come on to show you, we're confident about an improved performance for Original Source this financial year. Overall, for FY '22, we expect to see good growth across baby and beauty Must Win Brands, but we're realistic about the tougher base period comparison for our hygiene brands, especially Carex. Hence, we expect our total Must Win Brand revenue growth this year to be more in line with the overall business. Now we're working hard to maintain the market-leading positions of all of our Must Win Brands, and the model we use to drive consumer demand is the PZ Cussons growth wheel. To bring the model to life a little more for you, let's move to Slide 26 to take a look at some examples of progress made in different parts of the wheel, starting with consumability. That's offering a portfolio of existing and new products that help the brand own its core equity whilst also pushing it where appropriate in new directions to reach new consumers. Take Original Source, already the U.K.'s #1 vegan shower gel, has added a second tier to the brand's offering with the launch of the I'm Plant Based range of shower gels and soaps. It offers best-in-class natural formulations and fragrances that are 100% biodegradable, sold in 100% recyclable bottles made from 100% recycled plastic. Retail distribution has been building in the U.K. through the summer with digital-first activation more recently followed up with a new TV campaign for the overall brand. It's early days, but I'm pleased to report that Original Source was back in revenue growth by the end of our first quarter. We also have to make sure our brands are attractive, offering great value to our consumers, whether they're paying a high or a low price as well as offering economic value to our retail partners and to us. Building on our innovation programs, we use revenue growth management tools to improve price/mix and gross margin over time. Cussons Baby in Indonesia is a good example of this in action. We are intentionally driving product, category and channel mix to boost sales of our higher-margin subcategories while also appealing to more consumers. We've been growing market share in shampoo, hair lotions and baby fragrances as well as expanding gross margin in FY '21 by 3 percentage points. Moving to memorability, where we focus on building brand equity and consumer appeal with effective communication. We have increased investment levels behind strengthening -- strengthened marketing programs. The appointment of Ashley Graham as an ambassador for St. Tropez helped accelerate demand for the brand as we came out of lockdown in the U.K. and the U.S. Not only did this include digital-first activation starting with TikTok and Instagram but also product innovation designed by Ashley herself. The Ashley Graham Ultimate Glow Kit sold out across both markets twice and became the #1 selling St. Tropez product in both of our top U.S. retailers, driving strong double-digit sales growth in the U.S. Finally, shoppability, where we have to make sure our products are available with the right pack formats, in the right places, whether on or offline. In developed markets, this can involve developing commercial plans that win more display of shelf space with retailers. While in developing markets, it starts with the right distributor capability to reach consumers across large markets such as Nigeria or Indonesia. We've been consolidating our distributor base in Nigeria and opening up more wholesalers to reach into more remote corners of the country, helping Premier soap return to revenue growth in FY '21. Of course, successful execution of our strategy goes beyond just the improved Must Win Brand performance. And moving to Slide 27, you can see that we've also been hard at work driving progress across a number of fronts, starting with sustainability. Versus targets of reducing by 3%, we reduced carbon emissions by 9%, water usage by 23% and landfill by 28%, all good progress but we know we have more to do. So we have appointed our first-ever sustainability leader to work with the organization to create an integrated strategy that will cover all sustainability metrics mapped onto the B Corp framework. This will include renewed plastic commitments that will also extend to wider products, packaging and materials considerations to ensure we are delivering what our consumers and stakeholders expect from us. Ultimately, we are working to secure a B Corp certification by 2026 or earlier, and there's still a good chance we'll be the first U.K. PLC to achieve it. We've also made progress simplifying the business. At the overall group level, we continue to streamline our portfolio, building on the Nutricima divestiture last year or the five:am disposal this year. Operationally, we've also made progress, especially versus our declared intention of simplifying our operations in Africa. We've reduced supplies by 50% and further consolidated our distribution centers. We still have much more to do in this area, and we'll report on progress as we move through this year. Moving to Slide 28. We also know that we need to build an organization capable of delivering the strategy we have embarked upon. And this has been a significant area of focus, and it's good to see some early signs of progress. Overall, employee engagement scores have increased despite the obvious challenges of the pandemic. Specific questions like, "I know how my work contributes to the goals of PZ Cussons," and "I am proud to work for PZ Cussons," all scored at or around the 90% mark, well above normal benchmarks. We can and must go further with the renewal of our company purpose and values already underway and the continued strengthening of our leadership team. With the arrival of Joanna and Andrew to deliver against the specific and critical strategic imperatives of our sustainability commitments and reinventing our brand-building capabilities, with deep experience between them at companies such as Diageo, PepsiCo and Avon, they bring relevant skills and expertise to help us deliver against our strategic choices. I welcome them both to PZ Cussons. Moving to my final slide, Slide 29. I'd like to step back again to take stock after 16 months since my arrival and 8 months since Sarah's. Financial year '21 saw a solid financial performance from PZ Cussons, the first year of top and bottom line growth in 7 years, delivering what we said we would. We've made tangible progress against our new strategy, but we are not getting carried away. Many of you have heard me say on our calls that our problems have been years in the making and there'll be years in the fixing. And that's still the case today. We also said that we were sure we would encounter bumps along the way. And we have commodity and logistics inflation that is exceeding all expectations and disruption to the global supply chain. Our job is to manage through such bumps and keep focused on the long-term strategy, which we are. We'll get some tougher quarters than others and some tougher base periods for comparison, but I am equally convinced today of the opportunity for this business that I saw when I joined, building on the rich history and pioneering spirit of our past to reignite that spirit for the future, delivering for all stakeholders as we go, not least our shareholders with a recommended increase to our dividend announced today and striving for sustainable, profitable revenue growth as we build brands for life, today and for future generations. And with that, Sarah and I are keen to hear your questions. So over to you.

[Operator Instructions] And the first question comes from Nicola Mallard.

A couple of questions, if I may. Just on the marketing, obviously, total increase, that was 40%. And I think you said that all of the increase went behind the Must Win Brands. But if we looked at marketing in total, how much of the investment then behind the Must Win? Were you still spending money on the Portfolio Brands actually? Second question then is, within the Portfolio Brands, are there any that were standout performers that might be getting close to achieving Must Win status? Or is it too early to consider a change in that list of 8? And then finally, in Africa, obviously, a lot of cost has come out of the business and change there. And just wanted some reassurance that it's not been detrimental to sales or customer contact, et cetera.

Nicola, why don't I answer the first couple of questions on the marketing investment and Portfolio Brands. And then maybe Africa, I can hand over to Sarah. So as -- you're right. We increased our marketing investment by 40% last year, so a significant step-up and really delivering on what we said, which was putting our focus behind our Must Win Brands because that's where all of it went. And I think broadly -- I can confirm the exact number later, but we are still talking about 3/4 or so of our investment in total going against the Must Win Brands. So it's not only the increase going against them. It's on top of the significant proportion of our base investment going against the Must Win Brands. But just to be very clear and exactly as you were poking out with your second part of your question, Portfolio Brands still have an important role to play in our business, and some of them are very sizable. So that doesn't mean that they get no investment behind them. They get prioritized investment after Must Win Brands but to deliver the role that we have specified for them to play in our business. And some of those have very important roles to play. And therefore, we are keen to elevate over time 1 or 2 of our Portfolio Brands to get into the Must Win Brand status. And we intentionally created that, if you like, internal healthy competition because we want some hunger and some appetite and drive to try and get over the hurdle once they've qualified the growth wheel and, if you like, got to investment-grade. And there are some brands vying for it. And I know, for example, sitting here in the U.K., the Imperial Leather team are working very hard to try and get past the hurdle. And we'll let you know whenever we let them know. But so far, they're still striving.

And Nicola, on Africa, so we were very determined to return that business to profit but also not have that be at the expense of the growth momentum. So of course, the sale of the loss-making Nutricima business was a factor. We focus behind our core brands and our core categories and actually put additional M&C investment behind those core brands to sustain the level of growth. We've been able to successfully take price. Now of course, we're forever surveying the market and understanding what competitors are doing. PZ Wilmar and its improved profitability has contributed to the results. And actually, some of the simplification initiatives, some are internal in nature, so designed to liberate the time of our teams to further drive that brand growth. And also, some of those simplification initiatives actually are additive to growth in terms of our route-to-market capability, which we're looking to improve. So I think it's possible to both return the business to profit and continue the growth momentum that we saw in FY '21 and in Q1 of this year.

And the next question comes from Damian McNeela.

A couple from me, please. Just in terms of sort of the input cost inflation situation. I think you've been pretty clear, Sarah, of what's causing it and the potential impact. I'm just wondering whether we should expect sort of an H1, H2 phasing in margins because of the timing of price increases, whether you could give us any color on that, please? And then perhaps, Jonathan, I mean Carex has clearly had a pretty tough Q1. I was just wondering whether you could give us some insight into where it sits within the category in terms of market share and whether what the sort of the new entrants have been doing in the space, please. And then just the last one on Africa. I think you flagged distribution gains, which contributed to the underlying revenue growth. Can you help sort of quantify those and perhaps the timing of those just so that we sort of allay any concerns that there's sort of pipe filling that number and that Africa is sort of set to sort of slow down in this sort of this current year, please?

Thanks, Damian. So let me take the margin phasing and hand over to Jonathan. So yes, I think you're right. I think as FY '22 progresses, you should expect to see our margin progressively improve. And as you say, that's not only because our internal cost mitigation and our pricing and revenue growth management initiatives will take some time to take hold, but actually, we're also lapping a half 1 base period with unusually low levels of price promotional activity at the peak of the pandemic. So yes, margin improvement into the second half of the year is the right way to think about it.

Okay. So let me pick up on the Carex question. So in many ways, the good news is Carex was the market leader in liquid soap and sanitizers pre-pandemic. It remains the market leader in liquid soap and sanitizers post-pandemic. And meanwhile, of course, we saw the most incredible spike last year not just of consumer demand but also consumer demand without the need for promotional activity when retailers and us were just trying to keep things on shelves for consumers to be able to meet their hygiene needs with their most trusted brands. So what's interesting to look at is as we exit that spike in the base and we move into more normalized run rates, where are things settling? Well, the liquid soap market is settling about 25% above pre-pandemic run rates. And the sanitizer market, which in absolute terms is much smaller, is still more than double pre-pandemic run rate. And as I said, we were a market leader before and we're market leader since. In the liquid soaps, we have grown our market leadership position. So that's a real confident sign that even though there may be some roller-coaster moments and dynamics in the base that Carex is well positioned. Sanitizers is the interesting one where new entrants absolutely surged into the market. It used to be a market where there were 2 or 3 brands, no private label. And then of course, there are numerous brands and real blurring between what's private label, tertiary brand and what's a leading brand. Of course, there've been 1 or 2 notable heavy branded entries that I don't need to mention with some big marketing spend. But the fact that we've maintained our market leadership in a fragmented brand with some high competitive spend levels gives us lots of confidence that the Carex brand is rock-solid and will benefit from its market-leading position, whether the market edges up or edges down as we move through into winter and, of course, cold and flu as well as whatever may or may not happen with the pandemic. And then to answer your question on Africa. So pipeline is not a significant factor to be building into any numbers. Where we did see our distribution improvements, in some cases in numeric distribution terms, it was quite small, but because of the base, it was quite significant. And those were some of the more premium-priced brands within our portfolio there of Morning Fresh and Cussons Baby, where actually those categories are not widely distributed but they're -- so they're relatively concentrated. So you don't need many more distribution points to have a big swing. Equally though, on some of the, if you like, broader distributed brands, most notably Premier soap, where we benefited is from optimizing and evolving our route to market, where we've got a richer mix of, frankly, our stronger active distributor base combined with activating some wholesalers who were then able to go into the further corners, particularly in the north of the market, to reach parts that maybe our distributors weren't able to get to. So whilst it's been a driver, I wouldn't be saying there's a big one-off pipeline effect.

And the next question comes from Clive Black.

Well done in getting through the obstacle course out there at the moment. Two questions from me, if I may. First of all, can you say what the recent challenges mean for you in terms of your labor process and your thoughts around future automation? And secondly, coming back to the point of promotional participation. How do you see that evolving in the forthcoming months or quarters perhaps given the cost situation at the moment given the behavior of other proprietary manufacturers? And linked to that, what do you think this means for your SKU count? Will you be prioritizing product or doing otherwise?

So I will do the promotional one. Shall I do the labor plan as well and automation?

Why not?

Let me give you a sense on this one. So you'll notice that in the description of some of the volatility disruption that we've been seeing out there, we didn't focus heavily on labor. So compared to some other sectors, particularly, if you like, some other parts of the food manufacturing process or retailing or hospitality, we haven't seen such a crunch on labor. But where we have seen a crunch is much more on commodity inflation and freight and logistics, particularly container disruption. But having said that, we're well aware that there will be labor pressures. And therefore, as Sarah talked about increasing our capital expenditure plans, one of the priorities for that is making sure that we are investing where appropriate in automation so that we're able then to get that optimum mix as necessary between the use of labor and the use of automation. So that's definitely part of the CapEx plan, but it's not as big a factor for us as if we're in meat production or in retailing, to be clear. On the promotional participation, price rises, SKU counts, I think when you said, "Well done going through the obstacle course," it feels like an obstacle course with a three-legged race combined at the moment. And therein lies the challenge. But for a branded company, therein also lies the opportunity. As you know, a year ago, we were talking about revenue growth management and price/mix being an opportunity for PZ Cussons combined with the heavy, up-weighted investment behind our Must Win Brands. And looking back now, I'm really glad we made those choices as priorities. Because it means we've entered this period of unexpected commodity inflation with our brands in stronger positions and perhaps relative to our recent years with more pricing power. Then of course, the question comes, how do you execute that pricing power? In our developing markets, we have most easily been able to move to straight, head-on price increases. And in fact, we had already executed price increases in Nigeria and in Indonesia before the end of our last quarter, and we have already executed subsequent waves and there will be more to come. In our developed markets, we haven't shied away from straight pricing in selected pockets of our portfolio. But as you know, perhaps better than anyone, Clive, the art in a developed market is that sweet spot of promotional pack price optimization that enables you to nudge up your price realization without necessarily a big sticker shock either for the consumer to respond to or, let's be very clear, for the retail buyer to respond to when you're sitting across the table discussing pricing. So we have already started optimizing our promotional plan, tweaking here a little bit the depth of discount, tweaking here a little bit the SKUs we're promoting. In some places, we're moving from EDLP to high-low. In other places, we're moving high-low to EDLP. And it's managing that mix through the year that is leading us to then make some bolder choices about which SKUs we're prioritizing. We've made some references to reducing our SKU count and optimizing our SKU count. And I think we're going to be even more on which are the SKUs which will enable us to drive some price realization, and we support those more intentionally whilst we throttle back on the [ old ].

Sorry, just by way of supplement, Jon, you're not -- you haven't and you're not thinking about the current market environment being suddenly you would execute more SKU rationalization?

We have in some countries, but we're not seeing SKU rationalization as the primary lever unless it's part of the cost optimization because -- actually, the first thing we want to do before we go anywhere near pricing is challenge any cost in our system that the consumer doesn't value or benefit from in the product performance. So we have trimmed our portfolio in some areas for that as the primary driver. And then it's a question of really making sure by customer and by channel, which are the optimal SKUs that we want to drive? Because sometimes actually, right products in right channels -- think small sizes and on the go, large sizes in supermarkets. That's a way to drive price realization but it doesn't mean to SKUs.

And the next question comes from Alicia Forry.

Great. I hope you can hear me. So I wanted to circle back to Wilmar in Africa. You mentioned that profit improved there. I was wondering if we could dig into some of the factors driving that because it's in a business that's had a few ups and downs. So I was wondering if the profit improvement was simply because palm oil prices went up. Or has something changed in the cost base or the way that you're marketing those products? Just interested to hear a bit more on that.

Yes. That's an interesting question. And as Sarah said, so we did see increased profitability in our PZ Wilmar joint venture. And there were a number of drivers. There's no doubt there was some -- as you've seen, some movement in palm oil prices, but there were some other aspects of the market dynamics in Nigeria that benefited those with strong brands and actually some of that being even COVID-related where borders were shut, where previously products have been able to flow over borders, created more price elasticity, if you like. And as a result, as borders were closed, then the home brands, if you like, were able to price more effectively or have more pricing power because there was less threat of things being moved in or out over borders. But actually, at its heart, this is also a brand-building story because with Devon King's #1 brand and Mamador #3 brand, we've had real strength in our marketing activation and being able to increase our marketing investment even in recent months relative to previous years so that we're able to activate brands in very relevant ways for Nigerian consumers, tying in with both festivals and the evolution of digital media so that we're able to use both modern tools of communication combined with some very long-standing traditions in Nigeria to make our brands relevant today for consumers when they're looking to spend their precious naira on whatever cooking oil they choose to buy.

And while we're on the topic of Nigeria, is there anything that we should be aware of in terms of challenges, I guess, looking forward into the current year? I know you don't have a crystal ball but just anything that we need to specifically be aware of in terms of logistics difficulties, et cetera.

Nothing more than the general challenges that we've raised in terms of -- clearly, there's commodity inflation. There's always the challenge of ForEx. I mean you saw the difference between our report and our constant currency numbers for Africa last year, right? But what we're trying to concentrate on is even in Nigeria, whilst doing all that simplification work behind the scenes, it's making sure we're investing more against those long-standing heritage brands with very strong historic equity, some of the Must Win Brands like Premier, Morning Fresh, Cussons Baby but actually also some of the brands which we don't know well necessarily in other markets, like Stella, as Sarah mentioned, which saw double-digit growth last year. But some of that will come from that route-to-market optimization that we've also been talking about because it's that real -- for us, the real concentration area is invest behind the brands that consumers know and love and build a really effective go-to-market machine that puts them in front of consumers in the right pack size at a price point they want to buy at. And the more that we can strip out the rest of the noise, then the more we can focus on that, and that's our objective.

Well, congratulations on the good progress in that market.

Thanks, Alicia.

And the next question comes from Marc Saint John Webb.

Two questions, if I may. Firstly, you mentioned that you're going for B Corp certification. So that means PZ Cussons becoming a B Corp. Could you help us understand what that means in terms of increased costs? And does it have any implications on your expectations going forward in terms of EBIT margin, return on capital deployed, et cetera? And second question. I noticed that Imperial Leather is not on your list of Must Win Brands. And you mentioned that Imperial Leather was striving. I'm not sure I understood what you meant by that. But can you help us understand whether that is a brand that has potential? Just remind us how many sales each currently generates today.

Thanks, Marc, for your questions. Let me take the B Corp one, and then Jonathan will take the Imperial Leather one. So our sustainability strategy is something that we feel very passionate about. And we set out our intent to be a B Corp certification by 2026. So with now Joanna on the team, Joanna will be building a holistic plan in terms of what it means to get to B Corp both internally and externally. There will be some cases where we need to invest. There might be some opportunities actually to have our brands play to a broader set of consumers and be able to realize a price premium. So we don't, Marc, think of it as a cost necessarily as something that's part of our business. It's absolutely intrinsic to our strategy. We have always said that was part of our strategy. If we need to invest ahead, we will. But I don't think you should be thinking about any fundamental margin reset in terms of us going after B Corp. It will be self-funding.

And if I pick up on Imperial Leather, so this is a hotly contested one and a hotly debated one. So it's not a surprise that you asked the question, Marc, because it gets asked internally. And there's a moment of defining what we mean by Must Win Brand and then I'll come to the Imperial Leather, of course. So for us, a Must Win Brand is something that is -- has a right to win in the category it's playing in, and the category in that country needs to be financially attractive to us over time, right? And Must -- Imperial Leather absolutely has the potential to be a Must Win Brand. But the other requirement is as we talk about that PZ Cussons growth wheel, we want to make sure we have what we're calling a validated growth wheel. So we know what to do in each part of the wheel such that if we a pound against it, we can be confident we're getting a return on that investment. And then over time, we refine the wheel to improve and ultimately maximize that return on investment. And the reality is Imperial Leather is one of those few brands actually that I would say has a very positive equity but it's almost entirely latent. So what do I mean by that? The number of people that I meet that when I say what I do or they find out Imperial Leather, there is a reference either to 1980s advertising or to the bar of soap that you see sits on the corner of granny's bath, right? All positive and all warm, but they would no longer consider it in their everyday consideration set when they're going in to buy a washing or a bathing product. And part of that is our own fault, if I'm really honest, because we have undernourished it with marketing investments and awareness building activity in recent years, in line with the general underinvestment in the marketing investment line over recent years. But I think we've also made a few forays which may have been strategically flawed that, well, I'm sure, are very well intentioned but ultimately haven't helped us achieve what we need to. So whether you go to Indonesia and you see Imperial Leather as a body fragrance or in the U.K., you go in and you see it in a bottle sold for less than GBP 1, sometimes with a unicorn on the front or some reference to marshmallows or whatever, none of which really fits with what all of us would say we remember Imperial Leather was or critically what we think Imperial Leather could be. So the reality is Imperial Leather is in our top 10 brands if you were to rank it by revenue, right? And it would absolutely cut the top 8 if you were to say if it were just a revenue number. But we want to make sure as we boldly go to reinvigorate the Imperial Leather brand that we do so with complete confidence that we'll get a return on the investment. And that's why we're putting that hurdle that I referred to earlier, high, so that as we go from Portfolio Brand to Must Win Brand, we do -- we move forward with real confidence and the willingness to invest behind it.

And the final question has been submitted by Sriram Gurijala. I hope I pronounced that correctly. And the question is, how has your thinking on portfolio change evolved? Are you closer to understanding which parts of the business are disposal candidates? And given the balance sheet looks healthy, do you have any potential acquisitions on your radar?

Shall I take that one? Let me take that one. Thanks, Sriram, for the question. So I think the first thing I'd start with is how close are we to really having a real intuitive sense on all parts of our business as given we haven't left London for the last 8 or 16 months, not completely. But our position in terms of ultimate portfolio is unchanged from the remarks we made at the Capital Markets Day. So we are very clear that M&A is not needed for us to fix this business. So all our focus is on organic growth of the core. That said, I think it's absolutely fair to assume that some divestments and some acquisitions could absolutely play a role, be that to access white spaces, adjacent categories or to build our capabilities. And I think it is certainly fair to conclude that our balance sheet strength gives us the flexibility to invest in the business, invest in a growth strategy inorganically and also commit to a sustainable dividend as we did with our FY '21 increase of 5%. So nothing new to say but we continue to keep all elements of the organic and the inorganic strategy under review.

Sarah, thank you very much. And that was, in fact, the last question. So Jonathan, perhaps I could just hand back to you to close.

Thanks, Bob. So let me wrap up. We won't keep you much longer. First of all, thanks for finding the time to join us today, and thanks for those that asked questions. We know we're going to be talking to a number of you in the coming hours and days and weeks, and we look forward to catching up with all of you. Hopefully, what we've been able to give you a sense of today is that in FY '21, we set out to deliver some specific things and we're able to report that we did. And as we enter FY '22, we have our eyes very wide open to the challenges we face, but we're equally determined to be focused on our long-term delivery whilst working in the short term to navigate those very real challenges that obviously we've discussed in some depth already. And we do so with complete commitment and vigor, and we look forward to being able to update you on progress -- further progress when we come back earlier in the new year with first half report. Thanks a lot for your time.