The Group starts its second half year with Household sales growth prospects significantly ahead of expectations but at the same time facing weak trading in the European Personal Care & Aerosols division (“PCA”) and ongoing cost inflation in the near term. The combination of these factors means that the Board now expects full year earnings to be broadly in line with the prior year.
For the first half year, Group revenues at constant currency declined 0.6%. Excluding sales from Danlind, which was acquired at the end of September, underlying Household revenues were 3.4% lower versus the same period last year, with growth in the UK and South regions offset by ongoing decline in France and the negative impact in Germany of the previously-disclosed major contract loss. This reduction in revenues is now expected to be more than reversed during the second half year.
Trading at our European PCA division has been more challenging in the period and revenues declined 12.1%, approximately half of which was due to deliberate management actions to exit certain customer and product arrangements. As previously stated, we are currently developing an accelerated transformation plan for PCA and will provide more information in due course.
The lower sales levels and a number of mainly external cost challenges, including raw materials, labour market pressures and transportation costs, have impacted the Group's first half profit performance, particularly within PCA, such that adjusted operating profit for the first six months of the year will be lower than the Board's prior internal expectations. The revenue and profit performance of Danlind for its first three months as part of the Group have been in line with our expectations at the time of acquisition.
Looking ahead, the Group's growth prospects have been significantly enhanced by recent business wins, mainly arising from competitor weakness, with a number of major customers turning to the Group for support. We anticipate that these opportunities will lead to annualised high-single digit growth for the Household business. These additional sales are anticipated to phase in through the second half of the current financial year and Household is now expected to deliver mid-to-high single digit underlying revenue growth in the second half.
In order to capture this growth opportunity and support our customers, the Group has decided to defer certain efficiency and rationalisation initiatives planned for the current financial year, given the resources required in the near term to meet the anticipated rapid increase in volumes. The combination of the trading performance in the first half, ongoing cost inflation and the operational requirements ofaccommodating a significant level of new business means that the Group's full year adjusted profit before tax and adjusted EPS are now expected to be broadly in line with the prior year.
Although challenges remain in the European PCA business, we remain pleased with the sustained progress in our Household division, where our “Repair, Prepare, Grow” strategy is now delivering tangible benefits and the Board remains confident in the successful delivery of the Group's strategy.
Rik De Vos, Group Chief Executive, commented;
“Whilst the accelerated growth opportunity we are now seeing is an encouraging validation of the Group's strategy and the positioning of our Household business, the immediate task of accommodating such substantial growth presents challenges and choices. Despite the near-term margin pressures we are experiencing, we remain focused on delivering our medium-term financial targets and we will re-initiate various efficiency projects once this growth has been absorbed. Additionally, restoring the performance of our PCA business, the plans for which are under consideration, remains a top priority.”