Cussons squeezed by rising costs

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Imperial Leather maker PZ Cussons cautioned over its outlook as it grapples with the rising cost of key ingredients

Imperial Leather maker PZ Cussons has cautioned over its outlook as it grapples with the rising cost of key ingredients and discounting by rivals.

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

Its UK arm is also suffering from intense competition as rivals steal market share with heavy cut-price promotions on shower gels and handwash products.

The firm, which also owns Original Source, Charles Worthington and The Sanctuary spa range, revealed that the more difficult conditions contributed to a 5% fall in European operating profits to £23.7 million in the six months to November 30, a decline also driven by the eurozone debt crisis.

Richard Harvey, chairman of PZ Cussons, said full-year expectations were still in place but that current trading conditions and rising raw material prices meant the company remained cautious going forward.

The uncertain outlook prompted some analysts to reduce forecasts and led to a 9% slump in the company’s shares.

Experts at Panmure Gordon cut expectations for full-year pre-tax profits to £113 million from £117 million, adding: “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.”

In Tuesday’s half-year figures, the group revealed underlying profits rose 3.4% to £46.2 million as a stronger Asian market offset the European woes.

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

The UK figures were hit by tough comparatives from a year earlier, when the swine flu outbreak saw sales of its Carex anti-bacterial handwash soar.

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