PZ Cussons PLC

LSE:PZC

Q2-2025 Earnings Call

[Operator]

Hello, and welcome to the PZ Cussons Interim Results Conference Call. My name is Alex. I'll be coordinating the call today. [Operator Instructions]. I'll now hand over to your host, Jonathan Myers, to begin. Please go ahead.

[Jonathan Myers, executive]

Good morning, and thanks for joining our call today. This morning, we have announced our results for the 6 months ending 30 November 2024. Sarah and I are here to talk you through those results as well as to provide an update on operational and strategic progress.

So turning to the agenda for our call today. I'll start with a brief overview before handing over to Sarah to take us through the financial results in more detail. Next, I'll cover the operational and strategic update before finishing with a quick summary, and then it's over to you for your questions. Let me start then with some overall comments on how we are delivering against the priorities we set out for this year and our journey to transform PZ Cussons into a business with a more focused portfolio and stronger brands, delivering sustainable, profitable growth.

We have delivered solid trading overall in the U.K., Indonesia and ANZ, 3 of our 4 priority markets with like-for-like revenue growth of 2%. They delivered the strongest revenue growth of these 3 markets. The robust performance has been driven by new product innovation and effective price and promotional management combined with competitive brand activation and increased retail distribution. The sustained revenue momentum across the U.K. portfolio has enabled a step-up in profitability, supported by overhead efficiencies and continued improvement in the profitability of Childs Farm.

Looking further afield, Indonesia recorded a third consecutive quarter of growth despite the lag of some of the macroeconomic challenges we have faced over the past couple of years. Growth was driven by targeted innovation, strengthened retail execution and effective revenue growth management. Indonesia remains an important market for the baby category, driven by the high birth rate of such a populous country. And given its leading brand position, Cussons Baby is well placed to sustain growth in the future.

And in ANZ, our portfolio of category-leading brands is demonstrating its resilience in the face of market-wide declines in category value and volume by growing market share on both the rolling 12-month and quarterly basis. Meanwhile, in Nigeria, we continue to navigate the inherent volatility of the market effectively, thanks to our strong operational capabilities on the ground and the more recent stabilization of exchange rates, although still with a weaker naira than 12 months ago. Overall, the group's performance trends of the first half of the year have continued into the second half. So we are on track to meet profit expectations for the full year. Sarah will provide more detail in a moment.

And finally, we are progressing with our plans to transform our portfolio to unlock value and reduce complexity, processes involving our Africa business and the St. Tropez brand, although we have nothing to announce today on either transaction. So let me pause there and hand over to Sarah.

[Sarah Pollard, executive]

Thanks, Jonathan, and good morning, everyone. I'm going to share a summary of our first half results, walk you through the key movements at a group level and then by segment and finish with the outlook for the full financial year. As Jonathan mentioned, we have delivered a solid overall performance across the U.K., Indonesia and ANZ in the first half of the financial year. The decline in reported revenue and profitability has again been driven by further devaluation of the naira, which declined by 55% compared to the average exchange rate across the comparative period.

Group revenue declined by GBP 28 million to GBP 249 million, of which GBP 46 million is attributable to the translation of foreign currency revenue into sterling, of which the naira explains GBP 43 million. And the breakdown of the FX movements are in the appendix to the presentation.

Like-for-like revenue growth of 7.1% was driven by continued growth in the U.K. and in Indonesia and also by pricing in Africa. Adjusted operating profit was GBP 27 million, down GBP 3.6 million versus the prior period. This was primarily driven by improved profitability in the Europe and Americas region, offset by a decrease in Asia Pac and in Africa, with FX again contributing to that adverse movement.

Adjusted operating profit margin reduced by 20 basis points to 10.8% Profit before tax declined to GBP 19.8 million, reflecting the reduction in operating profit and also an increased interest charge with less interest income earned on lower naira cash balances, which more than offset the interest cost saving from the reduction in our overall group gross debt.

Adjusted earnings per share declined by 10%, less than the decline in profit before tax due to a lower adjusted effective tax rate of 18%, resulting from the statutory loss in our Nigerian business as well as a reduction in the sterling value of minority interest there.

The Board has declared a dividend at the same level as last year's first half payment, 1.5p per share to be paid in April. And in doing so, we have considered a range of factors, including a target cover ratio of approximately 2x as well as our clear intent to reduce leverage. The group's future approach to dividend policy will remain under review in light of the ongoing portfolio transformation activity.

Finally, net debt has reduced from GBP 115 million at the beginning of this financial year to GBP 106 million at the end of November 2024, helped by stronger free cash flow. This represents an increase of GBP 18 million on the GBP 97 million net debt reported at the end of the FY '24 first half from June to November 2023, which, of course, marks the beginning of the significant devaluation of the naira and its subsequent impact on our earnings and cash.

Turning now to the detail and firstly, our revenue performance. You can see here the naira translational currency impact on reported revenue and also the pricing-led Africa revenue growth being the primary driver of our overall like-for-like growth. Excluding Africa, group like-for-like revenue growth was 1.6% with growth in Europe and Americas and in Indonesia.

And now to operating profit. Our adjusted operating profit margin reduced by 20 basis points to 10.8%, reflecting a lower contribution from the PZ Wilmar cooking oil joint venture. This business is equity accounted, seeing us consolidate 50% of its earnings, but none of the revenue. Excluding this contribution from both periods, the resulting lower group operating profit margin actually improved 70 basis points to 8.9%.

Group gross profit margin was lower in the first half, reflecting the adverse mix impact of strong revenue growth in Nigeria. This was more than offset by an 80 basis point reduction in overheads as we have started to reduce our cost base. Marketing investment was flat in absolute terms, but contributed a 30 basis point improvement to operating margin, largely due to phasing this year with U.K. and U.S. media spend second half weighted and the lapping of some big campaigns in the prior year.

Let me now provide some more detail on the performance of each of our 3 regional reporting segments. Looking first at Europe and Americas, we saw growth in both revenue and operating profit. Revenue was up 4%, which was a combination of both price/mix and volume, up 3% and 1%, respectively. This performance was helped by a particularly strong Christmas gifting period in the U.K. with Sanctuary Spa growing double digits. Carex continued its good performance, growing strongly via both volume and price/mix. And Imperial Leather and Charles Farm also both grew revenue. And with Child Farm profitability benefiting from the move to in-house manufacturing from August of last year. And Jonathan will talk more about progress on Charles Farm a little later.

Adjusted operating profit increased to GBP 20.7 million with a margin of 20.5%, up from 12.8% last year. This improvement was driven by strong revenue growth, favorable mix and margin improvement initiatives across our brands and is the strongest profit performance of our U.K. business on a last 12 months basis for 3 years. St. Tropez revenue was flat as a solid performance in the U.K. was offset by a softer U.S. performance where revenue is weighted to the category's seasonal peak in our fourth quarter.

Looking now at Asia Pac. Half 1 like-for-like revenue was down 1.1%, with continued growth in Indonesia, offset by softer category performance in ANZ, plus external headwinds in some of our much smaller distributor markets. Depreciation of the Indonesian rupiah and the Australian dollar was offset by growth in non-branded manufacturing product sales, which are excluded from our like-for-like revenue calculation, resulting in reported revenue also a 1.1% decline.

In ANZ, a softer macro backdrop within our categories and some disruption to distribution at one of our key customers, which was felt across our consumer peer group and which is now resolved, saw revenue decline 3%. Despite this, we continue to gain market share and improve profit margins across our 3 main brands of Morning Fresh, Radiant and Raffides Garden.

Indonesia like-for-like revenue grew 4% in the first half of the year, delivering its third consecutive quarter of growth in Q2. This was driven by the implementation of a new trade promotion analytics platform during FY '24, allowing us to price more effectively and efficiently, consumer-relevant innovation and continued growth in the e-commerce channel, as Jonathan will comment on later. Cussons Baby maintained its market share alongside other multinational competitors.

Adjusted operating profit margin declined by 280 basis points, with higher ANZ and Indonesia brand margins offset by cost headwinds in our smaller distributor markets and some manufacturing one-offs.

Performance in Africa should be seen in light of the currency devaluation with the naira exchange rate 55% lower on average during the period compared to the first half of FY '24. The 28% like-for-like revenue growth was price mix driven as we continue to implement multiple rounds of price increases. And whilst disappointing, the double-digit volume decline, most notably in electricals, continues to represent the optimal PZ plan for us to protect our overall profitability and cash.

Electricals revenue was GBP 18.5 million, up 20% on a constant currency basis, driven by price increases and favorable product mix, helped by our innovative energy-saving appliances. Adjusted operating profit margin declined by 70 basis points, primarily due to a more normal level of profit from the PZ Wilmar JV, which had been particularly strong last year. And excluding PZ Wilmar, the lower Africa margin increased by 10 basis points as further pricing offset higher input costs.

Turning now to group cash flow and net debt. Our cash generation remained stable with net cash of GBP 11 million generated in the first half. This has led to a reduction in gross debt of GBP 14 million, leaving our gross debt now just above GBP 150 million and with headroom on our committed borrowing facilities up at over GBP 170 million. These levels are a good indication for how we will end the current financial year in May.

The payment date of the GBP 9 million dividend in respect of the FY '24 final results fell just after the end of the FY '25 half 1 reporting period. And this will partially offset the business' seasonally stronger second half cash generation profile. Our current naira cash balance sits at GBP 16 million, and I consider this to be an appropriate amount to support local working capital and CapEx requirements.

And turning finally to outlook. As we said in the statement this morning, year-to-date to the end of January, trading remains in line with our expectations, in part due to lower levels of volatility versus the previously severe impacts we have been experiencing in Nigeria. And as a result, we expect continued revenue growth in the second half of the year.

In terms of profit outlook, this is effectively unchanged. You will remember that in September, we provided FY '25 guidance for adjusted operating profit of between GBP 47 million and GBP 53 million. Our underlying assumptions are unchanged, and the business is on track. The mechanical, if you like, upward revision to the guidance of GBP 5 million is the impact of a technical accounting change to where certain noncash items, namely the FX revaluation of historical Nigerian intercompany loans are reported, moving from our adjusted or underlying view of profit to the statutory definition with both measures shown clearly on the face of the income statement.

With that, I will hand back to Jonathan.

[Jonathan Myers, executive]

Thanks, Sarah. Let me turn now to provide an update on progress against our strategic priorities. You should all be familiar with this slide, which very simply summarizes our strategy, building brands for life over the past 3 years. 5 pillars are summed up in just 10 words: build brands, serve consumers, reduce complexity, develop people and grow sustainably. And then we distill this overarching strategy into specific priorities for each financial year, just as we did back in September. So for FY '25, we are focused on these clear priorities, driving our businesses in the U.K., ANZ and Indonesia, continuing to strengthen our brand-building capabilities and moving ahead with the transformation of our portfolio, helping to unlock value and reduce complexity across a group of our size. So how have we delivered against these in the first half of our financial year?

First off, the U.K., where we are seeing sustained performance improvement, not least since the integration of the U.K. Personal Care and Beauty businesses, which we announced this time last year. We're now benefiting from better execution and sharing of commercial best practice across the full range of brands in our portfolio. Taking our hair care brands as an example, we've been able to use the strength of our go-to-market capabilities in the U.K. to drive significant distribution wins, more than doubling the number of distribution points of Fudge and Charles Worthington brands, including opening up new retailers such as Tesco and Waitrose.

At the same time, we've been able to expand our presence in the seasonal Christmas gifting market from Sanctuary Spa into Original Source and Customs Creations too, increasing retail sales value by more than 1/3 versus last year. Christmas gifting now represents a building block in our annual brand activation plan, and we have already reapplied the lessons learned from Christmas 2024 for bigger and better activation in Christmas 2025. These actions to drive top line sales have combined with the GBP 3 million plus overhead savings due to the integration of the 2 business units to drive material margin improvement. We're now delivering margin performance not seen since the exceptional demand levels of the COVID pandemic in FY '21.

Turning now to Indonesia, a market I visited at the end of our first half and was able once again to see the long-term opportunity of building a leading baby care brand in a country with more than 4 million births a year. Team there have delivered a third consecutive quarter of revenue growth, thanks to broader distribution, optimized pricing and promotional activity and consumer relevant innovation. We've also continued to diversify beyond our core mini market and general trade channels, with e-commerce an integral part of this diversification.

Supported by rapid growth in the live streaming sales channel, online revenue doubled in the first half. You might be interested to know that not only do we now have our own studios in our Jakarta operations from which the online influencers live stream, but also that the peak online shopping time for Indonesian parents is between midnight and 1:00 a.m.

Innovation plays its part too. Expanding our presence in Telon oil continues to help Cussons Baby reach new users. Telon oil is used as part of the traditional baby care regime in Indonesia. It provides warming sensation, a mild fragrance and protection from mosquitoes, and it's used in over 80% of households with babies, often up to 6 times a day. As a result, it's a sizable category in its own right, but one which has been dominated by a strong local player, hence, a clear opportunity for Cussons Baby. Results so far have been very encouraging. We've achieved household penetration of 7%, thanks to the depth of distribution already secured and to the willingness of users to recommend the product, fueling the word of mouth that is critical to winning in the baby category, which new parents seek out trusted sources of advice and recommendation.

Finally, to Australia, where we have category-leading brands across both home care and baby food. As Sarah mentioned, we have increased market share despite category softness, thanks to effective brand activation, targeted innovation and promotional optimization. Morning Fresh washing up liquid value share has increased by 50 basis points, consolidating our share leadership with the brand holding around half of the entire market. Radiant, the #3 brand in the laundry category, gained 130 basis points of market share with its combined value and performance positioning picking up shoppers as they seek out better value. And its most recent capsules innovation has outperformed, reached #2 in that subcategory.

And finally, Rafttys Garden, the #1 baby food brand in Australia, launched 7 new snack packs in the period, helping grow market share by 110 basis points. Although we've seen some pressure on the top line as a result of the overall category declines, the structural economics of the business are sound, and the team are working hard to translate stronger market share positions into a return to revenue growth as well as unlocking additional sales opportunities in other channels and categories.

Our second priority is to strengthen our brand building capabilities as we embed a new operating model to put more focus on driving innovation as well as stronger brand activation. A good example of the progress that has been made is on Charles Farm. As we speak today, we are in the middle of the rollout of new packaging and new formulations that represent the result of disciplined work to strengthen what the brand stands for, dermatologist-approved solutions for sensitive skin and fun while removing barriers to trial, such as a confusing lineup for the shopper by improving pack graphics and adopting clearer product names. All of it informed by and tested with extensive consumer and shopper research.

The launch provides benefits beyond improved shopability and enhanced product performance, including the ability to make more of the formulations in-house. So we now manufacture more than half of the Childs Farm brand at our as Croft factory alongside Carex, Original Source and Imperial Leather with all of the gross margin benefits that come with it.

Our third and final priority for the year is to make progress transforming our portfolio. Now I know you will all have questions on each of these projects. And as we said before, we will make announcements when we have news on them. But equally, we're not going to give a running commentary either. When we have something to say, we will do so. Let me step back to provide a summary.

We are making progress against the priorities we have set for the year. We're delivering solid results overall in the U.K., Indonesia and ANZ, making progress with our leading brands in attractive markets. We also continue to trade well in Africa. Overall group performance to date has been in line with expectations. We're on track to meet profit expectations for the full year. And finally, I want to underscore that we remain focused on transforming our portfolio to unlock and reduce complexity.

And with that, we'd be delighted to take your questions. So I'll pass over to the operator.

[Operator]

[Operator Instructions] Our first question for today comes from Matthew Webb of Investec.

[Matthew Webb, analyst]

I wonder if I could just start off on the U.K. where clearly, you've had a material improvement in your execution. And you've given a few examples of sort of, I suppose, the outputs of that in terms of things like better distribution. But I just wonder whether you could sort of go a bit deeper and sort of talk maybe a bit about how that has been brought about. Is it tougher management? Is it more resources? Is it the benefits of putting the 2 parts of the U.K. business together? Anything on that would be very useful.

My second question is just about Indonesia. I suppose there are a couple of parts to it. One, clearly, the market background is within the period was still relatively tough. I wonder whether you're seeing any improvement there. And then I also wonder whether you could just tell us a bit more about the price analytics platform and the impact that, that has had.

And then my final question, I know you're not going to talk about Centre Play and the Africa strategic review and quite rightly. But I just wondered whether you could sort of tell us anything about any plans that you are making to sort of think about what the cost structure of the business might look like in that new world? Is now the right time to be thinking about that? Can you think about that until you have clarity on what the Africa strategic review will conclude? Any thoughts on that would be really helpful.

[Jonathan Myers, executive]

Matthew, thank you for the questions. Why don't I pick up the U.K. and Indonesia question, and then Sarah can come in on the thinking for future cost structure. All right. So first of all, on the U.K., I mean, you're absolutely right to call out the distribution wins that have been secured. And those are a good manifestation of a step-up, not just in focus on being competitive, but a real focus on making sure that we're winning wherever the shopper shops.

As you hinted at, some of that is down to the fact that we have a reasonably new integrated leadership team that was the product of being able to bring the 2 business units together. So not only were we able to drive some overhead efficiencies, which we've alluded to, but we were also able to really drive the opportunities for best practice sharing between the 2. And if you like, Beauty bought Christmas gift sets and Christmas gifting into Personal Care and Personal Care brought really strong grocery trade relationships into beauty, hence, those hair care distribution wins that I mentioned. But overall, I think what we got is an organization that has a sense of momentum and belief in the brands that they're driving. And what you'll see, therefore, is a much stronger in-store execution.

If you just go out into stores across January or February of this year, you've seen that we have really been trying to fight back against some recent aggressive activity from some of our biggest competitors. And we were in stores just a couple of weeks ago as a leadership team, and we were able to see not only strong on-shelf performance, but also some big hairy, uggly displays at the front of the stores where you walk in with some great price points. So you always need a bit of strategy and street fighting to win in the U.K. grocery trade. And the good news is we're getting a combination of both. So there's 0 complacency, but high hopes for sustained delivery in the future.

But if I flick over to the other side of the world, Indonesia, so we have seen a moderation of some of the pressures on shopper spending in Indonesia. Some of it to do with the fact that a new government was appointed over the last few months. quite apart from causing a bit of a digestion with some of the things they have done. So they've created some new tax regimes. They've doubled the size of the cabinet, so it's not to leave people out. What they have done is create a slightly more benign economic environment, and we have been able to make sure that we benefit from that. But actually, I think our improvement has been more through self-help than macroeconomic factors.

So for example, some of it has been through driving a real focus on incremental distribution. So not only in the U.K., we've been growing distribution points and so in Indonesia, both on the existing Cussons baby lineup that we sell in outlets that traditionally sell baby toiletries, but also with the Telum launch, where we have incrementally added tens of thousands of outlets that don't sell toilet trees, but do sell this exotic Telon oil I was describing. So we're literally reaching new users and new outlets.

And all of that has been, we feel like, underpinned by an increasing sophistication of using data and analytics, not least informed by the price and promotion tool that we have implemented there that is helping us get the sweet spot between making sure we can drive volume, albeit at gross margins that might be under pressure in Indonesia, but are still highly accretive to our overall group gross margin performance. So we're managing the mix very effectively as we're trying to make sure that our products are turning up in more and more shopping baskets of Indonesian consumers. So hope that helps on the U.K. and Indo. Sarah, do you want to talk a bit about future costs?

[Sarah Pollard, executive]

Yes. Let me do that. So let me set some context and then talk a little bit about what we have done and what we will continue to do. So I think firstly, I'd say we are unapologetic in terms of the capabilities that we have put back into the business over the last 4 years. And those capabilities range from digital to brand building, all the way through to governance and control, effectively attracting people that know what good looks like. And that also includes being able to now reward those good people with competitive levels of fixed and variable compensation as the performance of the business has done rather better than it did perhaps in the 5 or 10 years before we joined the business.

That said, we are always looking to make sure our cost base is competitive, partly to share those returns with our shareholders, but partly to keep generating fuel for growth that we can use to reinvest behind our brands and drive profitable revenue growth. And you're also right to say, Matthew, that in light of some of the corporate activity that we have recently announced that we are progressing, our cost base is too high.

So we started, if you remember, with what we call our supply chain transformation. So optimizing our manufacturing, both in-house and via third parties for some real product cost and therefore, margin but also working capital benefits. You've seen us reminding today, we're seeing some real structural cost benefits in the U.K. business by virtue of merging our legacy Personal Care and Beauty businesses. And it's probably fair to say as we've in-house our Child Farm manufacturing in 2024 that we might come on to integrate that brand more fully in the coming months. And also, it is true to say that outside of our local operations in Nigeria, we have a level of global or group expertise that we deploy to manage the risk and volatility of that business and that ranges from people expertise through to higher audit fees and some other related items. So I think you could expect a significant cost saving there in the future.

And then beyond that, we are generally optimizing our cost base. So being a little bit more ruthlessly focused on where we spend our money, which capabilities are now sufficient because we are looking to make our cost base competitive. You're absolutely right.

[Operator]

[Operator Instructions] Our next question comes from Damian McNeela of Deutsche Numis.

[Damian McNeela, analyst]

Just on the first one, on the margin performance of Europe and Americas, could you help break down that sort of 770 basis points into improvement into some of the big buckets, whether that's overhead efficiencies that you've talked about in combining the U.K. business, whether that's sort of in-housing of Child Farm, if possible and whether there's any sort of cost savings in that please? And just give us a sense, I think you flagged that U.K. is trending at around about a 25% margin. Is there -- are you sort of confident that the business can sustain that level of profitability as we look forward? I guess, is the first question.

Second question is around innovation and A&P spend. And I was just wondering, is there any way of quantifying what proportion of the sort of your revenues are coming from new products? I think there's clearly been sort of an improvement in or a focus on driving more innovation. I was just wondering where we were in terms of how does the portfolio look in terms of renovation and how much more you're spending on A&P, do you think this year?

And then last question, I know you're not going to tell us anything about the progress of Santopez and Africa sales. But I was just wondering whether you're spending time on perhaps adding things to the portfolio or not because that was clearly a central part of the investment case to build on the current brand portfolio.

[Sarah Pollard, executive]

Damian, why don't I take the first question on the Europe and Americas margin and then hand over to Jonathan. So you're right to say we are encouraged, pleased, you pick your word in terms of the 8 percentage point margin improvement in Europe and Americas. And I think we would probably isolate that specifically to our U.K. geography. And of that 8 margin point improvement, roughly 1 is phasing. So we were lapping, for example, the Sanctuary Spa relaunch in the first half of FY '24. Some of our bigger campaigns in the U.K. business this year behind Imperial Leather Innovation and Original Source will be in the second half of the year. So there's a point of phasing.

The integration and overhead cost savings are 3 points of that 8 percentage points, which leaves 4 or 5 in terms of structural ongoing gross margin improvement, which is roughly 50% product mix. So remember, Carex is a brand, which grew 6% in the first half of the year is accretive to our overall mix, and we're pleased about that plus also what we call RGM or margin improvement initiatives. You've seen our state-of-the-art manufacturing facility up in the north. We continue to put more volume through that factory and continue really, as Jonathan says, we're doing in Indonesia, absolutely to do in the U.K. in terms of looking for the sweet spot between price and volume. And you can see us now in this half back to a more balanced price and volume-led growth.

So if you'll permit me plus or minus 1 percentage point of not having a crystal ball, knowing there are some cost headwinds on the horizon, I think 20% is a good proxy for what that business can do in the coming months, if not a little bit more, if that helps.

[Damian McNeela, analyst]

And just to be clear, when you talk about 20%, you're talking about Europe and Americas as a whole, not the U.K.

[Sarah Pollard, executive]

Correct. Now remember, we've got a -- I am talking about it as a whole. Remember, we've got our St. Tropez brand, which is a profitable brand doing most of its business in the second half of the year. But I think even for the U.K. in itself, assuming plus 20% is a good assumption.

[Jonathan Myers, executive]

Let me pick up on the second and third questions. The first one relating to innovation and marketing investment. And then are we thinking of adding at the same time as we're thinking of potentially disposing. So first of all, on the innovation and the M&C, M&C is what we call it internally, sorry, slipping into jargon there. That's marketing and consumer.

So innovation is an area where we are pleased with the progress we've made. But honestly, Damian, we can do better. And that underpins some of the choices and changes that we have made to our operating model over the last 12 months and will continue to evolve in the coming 12 months where we're not only trying to dial up our ability to win in the marketplace, very much as I described in response to Matthew's question in the U.K., but also as we look forward to a multiyear innovation pipeline, are we getting increasingly confident that we are developing, testing and then ultimately investing behind real market-winning innovation that will build brands, make them stand for more, enable us to charge if we want to, the appropriate premium so that we then get the gross margin profile that will enable us to have sufficient firepower within the P&L to invest back behind the brand, leading straight to your A&P question.

So what we have resisted doing so far is obsessively measuring the percentage of revenue that goes through innovation. I worked in businesses before where that can become a little bit of a cottage industry and everyone is suddenly claiming I've changed my label, so therefore, it's a new piece of innovation and then endless debates about using the word you used, renovation and what's what. What we know we need to do is put innovation and brand building in the beating heart of our business. And we will refine the measures, but we haven't yet resorted to, if you like, the very distinct measures of what's innovation, what's renovation. We may choose to, so watch this space.

But in general, your question is pushing in the right area of what are we doing to dial up our innovation capabilities and therefore, confidence in the plans we want to invest behind. So we're all over that. As we do that, we will continue to look at are we investing at competitive levels for a given brand in a given category in a given country. As I've talked before, we don't need to be investing too much more than 3% or 4% of net sales into bar soap categories in Africa in terms of marketing. But when you come to St. Tropez in the U.S., we need to be 15%, 20% or 25%. So we're not going to be playing across the group. But what we are going to do is really make sure we build a margin profile -- gross margin profile that enables us to invest.

And what I would say to you, as we look to the second half versus the first half numbers we've reported, you will see a step-up in our marketing investment, not least because some of our innovation plans were back weighted, most notably in the U.K. So actually, it means that we will be ending with, in a sense, a flourish that not only helps us to make this year, but also set ourselves up for next year. But we'll come back again in the future and talk a bit more about some of those capabilities.

But it does also link to so what is then our appetite and ambition for the future. So there is no doubt that here and now, we need to make sure we are reducing our gross debt, we are reducing our interest charges and that we're sufficient to invest in the organic business. So we're in no rush to go add anything. But absolutely, over time, in the right priority markets where we think we have scale and a right to win, and you would look at the moment and absolutely say U.K. is achieving that level. Indonesia with 3 quarters of consecutive growth is getting back to where it needs to be. ANZ, assuming we can get category dynamics coming in our favor also playing well. We think we have strong go-to-market platforms which absolutely other brands at the right time could benefit from, which would then not only give us an overhead leverage, but also which we're going to make it in-house a manufacturing leverage, which give us quite a sweetening to the P&L. But we're not getting carried away. That's not for today. That's not for tomorrow. We're very clear what we need to do right here and now. So hope that answers your question.

[Operator]

At this time, we currently have no further questions. So I'll hand back to Jonathan for any further remarks.

[Jonathan Myers, executive]

So look, thanks again for those of you that have dialed in this morning, particularly Matthew and Damian, you get gold stars for asking questions. Thanks a lot. What we've tried to convey is a sense of tangible progress being made, but with no complacency and a clear recognition that we have much to do, both to deliver the year, but also to drive through our portfolio transformation, and we look forward to our next update when we can provide the very latest progress on both fronts. Thank you very much.

[Operator]

Thank you all for joining today's call. You may now disconnect your lines.