Hello all and welcome to the PZ Cussons Q3 trading update. My name is Harry and I'll be your operator today. If you'd like to ask a question, please dial star one on your telephone keypad to enter the queue. It's now my pleasure to hand you over to Jonathan Myers to begin. Please go ahead when you're ready.
Thank you, Harry, and good morning everyone. Thank you for joining Sarah and me on the PZ Cussons Q3 trading update call this morning. By now you should all have seen this morning's announcement, so I'll touch briefly on current trading and other developments in Q3, and then provide a little more color on our announcement regarding plans to maximize shareholder value through portfolio transformation following a strategic review of brands and geographies. Sarah and I will then be happy to take your questions. Before going into the detail, I'll just start with three key messages. First of all, trading is on track with improved volume-driven momentum in our business in Q3. Secondly, with better access to dollars in Nigeria, our balance sheet has improved, and we have good visibility in terms of our ability to make further significant progress over the coming months.
Thirdly, we're making bold strategic choices to build stronger brands in a more focused portfolio, and ultimately to deliver sustainable, profitable growth. So let me move on to say a little more on trading. Overall, our third quarter has been in line with our expectations. As explained with our interim results, the devaluation of the Naira means revenue on a reported basis declined by 24%. But we've seen improved momentum across the business, with like-for-like growth improving from +2% in our first half to +6% in our third quarter. This momentum has been volume-led, with albeit modest volume growth in Q3 compared to a decline of 5% in H1. Volume trends improved across each of our three regions. Excluding Africa, like-for-like revenue declined 3%, again a slight improvement from the 4% decline in the first half.
We've seen particularly strong revenue growth on our U.K. brands and Radiant in Australia, including the much-anticipated return to growth of Carex, growing by 5% in Q3 with a very healthy balance of price and volume. You'll remember the Sanctuary performance was exceptionally strong in the comparative period, and in addition, beauty performance in the quarter has been further impacted by some well-publicized category softness in the U.S. As a result of the performance to date, today we're reiterating the full-year guidance provided at the interims. On the assumption that the Naira exchange rate is broadly unchanged from current levels, we will deliver operating profit for the year in the range of GBP 55 million-GBP 60 million. Turning now to our cash position.
Our balance sheet has changed markedly over the past year given the impact of the devaluation of the Naira, and we were clear at our interim results in February that the gross debt of over GBP 200 million was too high. We've made good progress reducing this number since June and have a clear line of sight to further reduction in the coming months. Improvements in access to dollars in Nigeria have meant we've now repatriated GBP 35 million so far this year. And with a further GBP 15 million-GBP 20 million expected by the end of the financial year, albeit subject to FX fluctuations, we'll have repatriated at least GBP 50 million in FY 2024. This is in line with the guidance we provided at our trading update in November.
We therefore expect gross debt to be in the region of GBP 160 million-GBP 180 million by the year-end, with headroom on our banking facilities of approximately double what it was at the end of FY 2023. Accordingly, the board has decided. So also you'll remember that for a period of time we have been disposing of surplus assets in Nigeria, mainly residential property. We ceased this program in light of a cash build-up and concerns over a potential currency devaluation. However, with greater access to dollars, we have reinstated this activity. In addition, we have identified further assets inside and outside of Nigeria, which are surplus to our operational requirements.
Combined with the expected sales of recently closed manufacturing facilities in Thailand, as we've previously announced, and land that is no longer required in Indonesia, the value of these assets is likely to reach into the tens of millions GBP. As indicated this morning, therefore, we can comfortably see a glide path to a meaningful reduction in gross debt compared to the GBP 160 million-GBP 180 million I mentioned a moment ago. In short, we are comfortable with our balance sheet position. Against that backdrop, I will spend a few moments now talking about our plans to maximize shareholder value through a transformation of our portfolio. Over the last three years, we have made good progress in strengthening PZ Cussons and building back critical capabilities. However, as a board and management team, we are acutely aware that despite this progress, shareholder returns have fallen short of our expectations.
This is in large part driven by the challenges in Nigeria, which has experienced a currency devaluation of approximately 60% over the last year. We also consider the overall PZ business portfolio to be too complex for our size. In many ways, we have the complexity of a large global business, but without the corresponding infrastructure, resources, or benefits that come from scale. As a result, we see financial and human resources spread too thinly to generate consistent returns. Despite the clear strength of many of our brands and our go-to-market capabilities, our competitive advantages are frequently curtailed. Accordingly, the board has decided to refocus the PZ Cussons portfolio on where the business can be most competitive and where it can create the most value for shareholders. We are therefore taking the following actions. First, we plan to initiate a process to divest Sanctuary Spa.
The brand has grown significantly under our ownership, yet still has enormous potential, not only with its existing customers and proposition, but also by expanding into entirely new geographies, categories, or channels, stretching far beyond PZ Cussons' footprint. We're passionate advocates of the brand, but at the same time recognize that more value can be created in the hands of others. Secondly, we are evaluating options for our Africa business. This is a portfolio of exceptionally strong assets. We have category-leading, indeed sometimes category-defining brands, highly attractive commercial and manufacturing infrastructure, and a brilliant team with years of expertise operating in these emerging markets. Nevertheless, the board recognizes this is a very complex group of assets, and we are therefore evaluating the strategic options both to reduce risk and to maximize shareholder value.
While we are clear on our intention, this process could take some time, and there are a number of potential outcomes. I want to be clear that we will be highly disciplined in each of these processes and are willing to take our time to achieve the right outcome for shareholders. As we stated in the release, the proceeds from any transactions will initially be used to invest behind the organic growth of the business and to reduce gross debt further. The group will also have the potential and ambition to pursue targeted acquisitions, which are highly complementary to a more focused category and geographic footprint. To wrap up, then, a reminder of the three key messages today. First of all, trading is on track with improved volume-driven momentum in Q3.
Secondly, with better access to U.S. dollars in Nigeria, our balance sheet has improved significantly, and we have good visibility in terms of our ability to make further significant progress over the coming months. Finally, we're making bold strategic choices to build stronger brands in a more focused portfolio, and ultimately to deliver sustainable, profitable growth. With that, Sarah and I have already taken questions you may have, so back to Harry.
Thank you, Jonathan. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind and would like to withdraw yourself from the queue, please dial star two. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. And we will just pause for a moment to assemble our roster. As a reminder, that's star one for any questions now. Our first question today is from the line of Damian McNeela of Numis. Damian, please go ahead. Your line is.
Hi. Morning, Jonathan. Morning, Sarah.
Morning, Damian.
Just a couple of questions from me to start with, please. I think if we look at the balance sheet and the gross debt, just Sarah, could you just provide a little bit more color? Because if I add up the Nigerian repatriation, there is a gap on your projected gross debt. I'm just wondering how much of the non-trading assets like Thailand fall into FY 2024 at all, and whether there are any other areas where you've made progress, perhaps working capital to reduce gross debt in the period is the first one.
Morning, Damian. Good question. So what you're rightly pointing to is an approximate GBP 70 million improvement in our gross debt position so far in FY24, with only a GBP 50 million contribution towards that from the repatriation of cash from Nigeria. None of the non-core asset disposals that we are alluding to in the release have yet happened. So that will be an activity over FY25, which is why we're confident for another meaningful reduction beyond that GBP 160-GBP 180. So two things have also contributed to the improvement in gross debt in FY24. One is good underlying operational free cash flow outside of Nigeria, and the other is a more determined effort to pull some of our cash balances from our other geographies here to the U.K.. So all the non-core asset disposals totaling some tens of millions are yet to come.
Okay. That's great. Thank you very much, Sarah. Then in terms of Africa, I mean, obviously it's going to be a fairly sizable project. I was just wondering whether you could provide any sort of color on whether you'd spoken to your JV partners yet and anything you could add there. And also, how does it impact the buyback of the minorities or the purchase of the minorities that's currently outstanding?
So let me pick that up, Damian, and then I'll pass over to Sarah specifically on the status on the local listing. So you're right. It's a big project. It's not a decision that we take lightly to say that we're going to review strategic options. We're a business with such history and heritage. I mean, we've been operating in Africa for 140 years. But equally, there's no emotion as we look at this. We have to make the right call in pursuit of shareholder value and also looking at taking actions to reduce risk for the group. What we see is a really high-potential set of assets, but quite a complex set of assets, including some joint venture partners who absolutely we have alerted that we were going to be making this announcement to this morning.
We will be talking to them as we embark on this piece of work. But actually, we see the potential for significant value creation in the future in our African business, and we're just trying to explore what is the best option to help realize that. The local listing is part of the options that we need to weigh. Sarah, do you just want to comment?
I get a little more color on those plans. So you're absolutely right, Damian, to say that we had announced our intention to buy out our minority shareholders in Nigeria with a view to taking that subsidiary holding private. We had an offer approved by our local board and put to our local shareholders. The local regulators actually have advised us that they won't recommend that offer proceed due to a local technicality in terms of it being below the prevailing price at which our shares are currently trading in Nigeria. We are equally clear that was an offer that we made in good faith that appropriately values our business there, and we won't be increasing that offer.
If I take us back to the strategic rationale for having made that offer in the first place, it was a little bit to take some costs out of the local business that we wouldn't need if we were private. It was far more so to be able to consolidate an income stream and effectively an acquisition multiple that represented good economics and value creation for our shareholders. But first and foremost, it was to give us strategic flexibility. So what you should assume is the plans that we are announcing today is us taking a more holistic look at the optionality to do exactly that and give us real strategic flexibility so that our Nigerian business can create value for our group shareholders.
Okay. That's very clear. And I think perhaps just one last one on trading in Europe and Americas. I mean, obviously, you've sort of stated that this year's profit expectations are going to be broadly in line. I'm just wondering if your conviction in the performance of the U.K. washing and bathing brands in Q3 and into next year, have you got sort of growing confidence in those brands given Carex is now back in growth and we're seeing sort of sustained growth across Original Source, Imperial Leather, etc.? Just wondering if you had any thoughts on that.
So let me answer that one, Damian. The answer is yes, we have growing confidence, but we also remain healthily paranoid, right? So we absolutely approach it with humility. But if you were to look at whether it's on a past 52-week basis or a past 12-week basis, you would see that we have been growing not only value share but also volume share. And actually, our biggest competitor has been losing on both counts. So we see genuine momentum across the board with some particularly strong growth rates on brands such as Original Source, such as Cussons Creations. But we are also able to celebrate or mark that Carex is back in growth, as we said, by 5% in the quarter, right, for the first time over a full quarter. And that gives us real confidence as we go into next year that we have sustained momentum.
But we know that we need to earn that momentum, and we need to earn the loyalty of our consumers. So we're working hard to build stronger plans to make sure we carry that through next year. But yeah, we're confident.
Okay. That's clear. Thank you very much. I'll let someone else ask some questions.
Thank you. As a reminder, if you'd like to ask a question, please dial star one now. Our next question today is from the line of Matthew Webb of Investec. Matthew, your line is now open.
Yeah. Morning, everyone. Three questions from me, please. The first is you talk about investing behind organic growth, and I just wonder whether you could give us a bit more color on that. Is that sort of predominantly in marketing? Is it expanding sales teams? Is it more resourcing to new product development? Any color that would be very helpful. The second question is just I know this is probably quite a difficult one, but would you be able to give us any sort of guidance on the likely timetable for the disposal of the various non-core assets that you've both identified and sort of put back into the sale process, as it were? And then the third question, I think the way you've worded it is that you're initiating a sale process for Sanctuary Spa.
I just wondered if you had already had any informal discussions, expressions of interest, anything that would sort of encourage you that an attractive price can be achieved, and perhaps more broadly, whether you sort of think there's a healthy market out there at the moment for this sort of asset. Those are my three. Thank you.
Thank you, Matthew. Why don't I take the first, and Sarah can pick up on the second relating to the M&A timetables, right? So first of all, we absolutely see an opportunity with a healthy return on investment lens that we believe we can generate returns on investing behind some of the very strong brands that we have in our portfolio, right? And we approach it from two ways. What is sufficient to be competitive? And then what is the activity we would be investing behind, and does it merit the investment, right? So we want to get enough oxygen into the P&L, ideally through gross margin and managing price mix, so that we have the ability to invest and still maintain a healthy P&L structure. But then before we release that investment, are we actually sure that what we invest behind has got a track record, proven return?
It could well be in marketing, so yeah, classic media. It could also be in the form of innovation. We have made some structural changes over the last six months to put greater focus behind our innovation capabilities. We build a richer pipeline of future innovation that we have more confidence through good pre-market or pre-launch qualification will give us a bang for our buck. But actually, it goes beyond marketing and innovation. We're also thinking potentially in some digital data activation, but ideally also as we strengthen our go-to-market capabilities so that we have a real winning face to the customer base that we're dealing with, whether it be in the U.K. or in Australia or any of the other markets we operate in. But we'll always be applying a rigorous ROI lens to make sure we're not eroding value. We're actually generating value. Sarah.
Good morning, Matthew. Thanks for your question. So you were expecting to not be drawn on timetable for the processes that we've announced today. For one overarching reason and a couple of specifics, one is we're clearly going to be very disciplined, and we will not be trading off speed for value. So you shouldn't expect us to be in a rush through that lens. And the teams on the ground are very much focused on maximizing and optimizing all of our businesses as they remain in our care. The Sanctuary Spa separation will be relatively more straightforward if you think about it being a single brand in effectively a single market. So we generate about 70% of our Sanctuary Spa business in the U.S. On Africa, first and foremost, we have no predetermined outcome from that evaluation that we've embarked on.
But any option that we pursue will be slightly more involved. So let me not be drawn on timing beyond that. But that absolutely is the reason that you see us talking about initiating the separation and the sale of the Sanctuary Spa brand. That said, you should assume they are more than plans on a piece of paper. So we have actually, over the last two or three years, let alone the last two or three months, received a number of legitimate and unsolicited interests in various parts of our business. And particularly, you as well as I can look to the beauty sector particularly to know that there is a good, healthy level of interest in high-quality beauty brands, which we absolutely, passionately believe Sanctuary Spa to be.
Let me not be more specific, but we are confident in the outcome of both of those processes realizing shareholder value for us at PZ Cussons.
Thank you very much. Very clear.
Thank you. This will be the final reminder for questions. If you'd like to ask a question today, please dial star one now. Thank you. This will conclude the Q&A session. I'd now like to hand back to Jonathan Myers for any closing remarks.
Okay. Harry, thank you very much. So thank you all of you for joining us this morning. Obviously, it's way more than the regular scheduled Q3 trading update given the news that we have announced. As and when we have more to say, we will. We're not going to give a running commentary, but we will obviously be keen to update you when there is appropriate news. Of course, if you do have questions following what we've announced, you can follow up with us, or you can get in touch with Simon. Otherwise, Sarah and I have plenty to get on with, so that's what we're going to do. And we'll leave you to get on with your days too. Thank you very much.
Thank you, everyone. This concludes today's call. You may now disconnect your lines.