Last checked at 3 Sep 2009 07:00
3 September 2009
McBride plc
McBride plc, Europe's leading provider of Private Label Household and Personal Care products, announces its results for the year ended 30 June 2009
"Return to organic sales growth, recovery in operating margins and return on capital employed, and an increase in the dividend"
Revenue up 13% to £792.4 million (2008: £700.9m) reflecting 4% of organic growth and 9% from currency translation
Adjusted operating profit* increased 34% to £36.2 million (2008: £27.0m). Reported operating profit improved 28% to £27.4 million (2008: £21.4m)
Adjusted operating margin* improved from 3.9% to 4.6%
Proposed final dividend of 4.3 pence (2008: 3.9p). Total for the year up 7% to 6.0 pence (2008: 5.6p)
Strong cash flow, with cash generated from operations, before exceptional items, up 25% to £61.8 million (2008: £49.4m)
Year end net debt reduced £20.9 million to £82.4 million (2008: £103.3m)
Return on capital employed* improved to 17.1% (2008: 12.8%) reflecting both a higher profit margin and asset turnover
Adjusted diluted earnings per share* was up 49% to 12.8 pence (2008: 8.6p). Reported diluted earnings was up 44% to 9.1 pence (2008: 6.3p)
* Adjusted operating profit, adjusted operating margin, adjusted diluted earnings per share and return on capital employed are calculated before amortisation of intangible assets and exceptional items
Miles Roberts, Chief Executive, said:
"McBride has delivered growth in sales and profits in the past year and Private Label has grown share in all our markets. Our Western Continental Europe business has performed particularly well with good growth in France and Italy.
We have made a good start to the new financial year, continuing the trend in the second half of last year. Our markets remain highly competitive but McBride's Private Label products continue to be relevant not only in the current environment but also in the longer term. We have strengthened the business further in the last twelve months and expect to consolidate these improvements in the coming year."
For further information please contact:
| McBride plc | 020 7539 7850 |
| Miles Roberts, Chief Executive | |
| Paul Bergin, Interim Finance Director | |
| Financial Dynamics | 020 7831 3113 |
| Andrew Dowler |
Overview
This year has seen a return to organic sales growth, recovery in operating margins and return on capital employed, and an increase in the dividend.
Revenues increased in all three divisions. Organic revenues (excluding 9% benefit from currency translation movements) increased 4% overall with Personal Care up 8% and Household up 3%. This growth was underpinned by a continuing focus on product development and customer service as well as an increase in demand for Private Label products.
The year experienced significant movements in raw material costs, the pressures of which were offset by selling price increases, improvements to procurement and commercial practices and operational efficiencies.
The UK's manufacturing capabilities were reconfigured in the year, with the closure of two sites and transfer of production, mostly to the St Helens facility which was acquired in 2008. There was also restructuring at Western Continental Europe some of which took place in the second half of the year. In relation to these projects there was a £7.1 million pre-tax operating exceptional charge, mostly relating to redundancy costs.
Cash generated from operations, before exceptional items at £61.8 million (2008: £49.4m), was at an all time high. Net debt reduced £20.9 million to £82.4 million (2008: £103.3m) and this reduction was net of a £5.2 million debt increase due to currency movements, primarily the strengthening of the Euro against Sterling on translation of Euro denominated debt.
In the UK, revenue grew 5% to £311.4m (2008: £297.3m) and adjusted operating profit* improved to £16.2 million (2008: £15.2m). Operating margin increased from 5.1% to 5.2%.
Western Continental Europe's revenue grew 19% to £469.8 million (2008: £395.4m), including 2% of organic growth, and 17% from currency translation. The organic increase reflects strong growth in France and Italy partially offset by the non retention of non core sector lower margin business, primarily in Spain. Adjusted operating profit* grew to £20.9 million (2008: £11.4m) with the margin improving from 2.9% to 4.4%, driven by a strong profitable contribution from its major markets, notably France and Italy.
Eastern Continental Europe's revenues were up 3% to £33.2 million (2008: £32.1m) comprising a 7% currency translation benefit and 9% underlying growth, offset by the impact of cancelling a significant manufacturing contract with a branded company. Adjusted operating profit* was £2.0 million (2008: £2.1m). Operating margin reduced from 6.5% to 6.0%.
* adjusted operating profit is before amortisation of intangible assets and exceptional items
Outlook
We have made a good start to the new financial year, continuing the trend in the second half of last year. Our markets remain highly competitive but McBride's Private Label products continue to be relevant not only in the current environment but also in the longer term. We have strengthened the business further in the last twelve months and expect to consolidate these improvements in the coming year.
The industry, market and competitive environment
The European economies have been in sharp recession during the past 12 months; latest forecasts for 2009 show the UK economy down 4.3% and the Euro-zone down 4.8%. Despite this bleak macro-economic environment the Household cleaning market is up 3% in the UK, 2% in Italy but fell by 1% and 2% respectively in Germany and France. By contrast, the Private Label sector outperformed the overall market in all countries, growing by over 5% in the UK and Italy, 1% in France and stable in Germany. In the UK and Italian markets, Private Label growth has been four times higher than branded sales growth. In the current economic period consumers are more value conscious then ever and are increasingly choosing Private Label products for their superior quality/price performance.
The industry is highly competitive and McBride is the leading provider of Private Label products. Competition represents a small number of major multinational branded companies and a large number of small and generally local Private Label companies. McBride differentiates itself mainly through its dedication to the Private Label sector; new product development, customer service, operational efficiency and procurement capabilities enable the Group to deliver outstanding value products to its customers and ultimate consumers and investments in these important areas have been increased.
In the last year Private Label has gained market share in all McBride's core markets. This is partly due to the overall economic environment in which consumers are increasingly careful to choose products which represent the best value for money. However, it is also due to consolidation in the retail sector and the increasing focus of major retailers on differentiating their own market position through their Private Label propositions. The share gain for Private Label has been achieved despite a major promotional push on the major brands towards the end of the financial year.
In Western Europe, the Household and Personal Care markets had a combined value of £59 billion (at retail selling prices) in 2008 and they grew at 1.0% and 3.0% per annum respectively in the five years to the end of 2008. In Italy the Household market grew by 2% but Private Label grew by 6%. This pattern was reflected in other markets too: in France the market was down 2% but Private Label was up 1%, and in Germany Private Label was flat in a market which was down 2% in value.
Eastern Europe has continued to show higher growth levels in both the Household and Personal Care markets, which had a combined market value in 2008 of £16 billion (at retail selling prices). Over the five years to the end of 2008, these markets grew at 13% per annum, reflecting increasing disposable incomes and consumer affluence and greater product availability driven by retail consolidation.
(Source of market data: Euromonitor, Gfk, TNS)
Business performance
Geographic and product performance
McBride's organic growth was 4% in the year. Sales of the Group's established strategic priority categories, Personal Care, specialist cleaners, laundry liquids, air care and automatic dishwashing tablets, continued to see stronger than average organic growth of 7%.
Personal Care sales were up 14%, which represents 8% organic revenue growth in the year, continuing the trends of recent years. In the UK sales were up 10% although margins were lower mainly due to the cost of commissioning the new St. Helens factory. Performance benefited from some key new customer wins and an expansion into more premium product segments.
Household product sales were up 13%, which represents 3% organic growth, reflecting the lower emphasis given to non-core product categories. During the second half of the year, a number of new contracts have been gained based on our improved competitive position.
New product development
McBride prides itself on the speed and quality of its new product development activities, focused on our core product categories. In the last year ranges of super concentrated liquids and sachets were launched in both laundry and dishwashing categories and two major range enhancements were developed for Personal Care customers. Overall, expenditure on R&D increased by 12% in the year, reflecting a commitment to differentiate McBride to its customers in this vital area. A range of environmentally friendly products has also been launched in the year, including liquids which wash at low temperatures and more concentrated formats which use proportionately less packaging. McBride's goal throughout is to develop new products which match or exceed the performance of the major brands.
Customer service
Customer service is the Group's main operational priority and a highly visible benchmark that influences directly its ability to maintain commercial leadership and support the Group's overall growth strategy. Success is measured in this area by reference to success in delivering products ordered by customers in the correct volumes and within agreed timescales, which can be as short as 24 hours. The customer service level across the Group in the year was 97% (2008: 96%), although the goal is to strive for customer service levels in excess of 98%.
Efficiency gains
During the year, the Group continued to make incremental gains from improved efficiencies, for example, automation of its production facilities. Over £20 million was invested in capital expenditure of which the majority was focused on efficiency projects. The new facility in St Helens was fully integrated, incorporating the production from facilities in Coventry and Warrington. This resulted in the closure of these two factories, delivering overhead savings of approximately £1 million per annum from the latter part of the year.
Overhead costs were rationalised by re-engineering of central administrative functions and this is expected to continue as the Group invests to harmonise computer systems and IT infrastructure in the current financial year.
Value engineering
Value engineering is a permanent feature of our product development activities and consistent with our commitment to minimise our impact on the environment. During the year, we increased our investment in this area, which, for example, enabled us to continue to reduce costs through product reformulation and 'lightweighting' of product containers.
Procurement
Our procurement activities have been strengthened and significantly contributed to the Group's performance during the year. Alternative suppliers have been sought for all critical materials to ensure that there is more than one source for each.
Sustainability and Safety
Progress has been made on key environmental measures in the year. Energy usage is down 6% and energy used per tonne of product is down 1%. Water consumption is down 8%. Factory waste increased slightly to 1.3% including the adverse impact of closing two factories and commissioning a new one. Accident levels reduced by 22% and the frequency per 100,000 hours worked reached 1.4, the lowest level since records were kept.
Performance against objectives
Two years ago, a number of key objectives were established and the report below summarises the progress made against these objectives to date.
Improve customer partnership and service, category development and product innovation
Notwithstanding the cost pressures, resources in this area have been increased by 12 heads during the year. The environmental impact of the Group's products has been reduced through eliminating the use of certain ingredients, such as phosphates, and reducing packaging by, for example, the use of refill sachets and 'lightweighting' of product containers. New comprehensive Personal Care ranges have been developed for two major customers and new discount products developed for many customers to support the growth of Private Label in the current economic environment. The development of new products and the improvement of existing products are core planks of the Group's commercial strategy to drive the Private Label segments of its markets.
Deliver improvements in efficiency and reduction in costs
A number of programmes to improve efficiency and reduce costs were implemented, including the UK manufacturing reconfiguration referred to above. Three sites have been closed and the introduction of new operating processes based on 'lean' principles has been commenced. The installation of over 5,000 solar panels on the roof of the Ieper factory has contributed to a reduction in energy consumption of 6%.
Target our identified growth product categories
The Group's growth product categories are automatic dishwashing tablets, specialist cleaners, laundry liquids, air care and Personal Care that delivered a combined 7% organic revenue growth compared to 4% in organic revenue for the whole Group.
Further improve performance in Western Continental Europe
The Western Continental Europe business has improved its profitability in the year by a combination of efficiency gains and price increases to partially mitigate cost pressures. Operating margin was 4.4%, close to the Group average.
Accelerate growth in Eastern Continental Europe
Although McBride's Eastern Continental Europe sales were only up 3% and declined by 4% on a constant currency basis, it was heavily affected by the termination of a major sub-contracting contract during the year. Excluding this impact organic growth was 9%. A new Managing Director has been recruited recently for the region and the Group remains confident of significant further growth in the forthcoming year.
Take advantage of further suitable acquisition opportunities
During the year the Group continued to consider acquisitions that are consistent with its product and geographic priorities. The St. Helens facility, acquired in 2008, has been fully integrated into the Group. Other targets have not yet been realised other than the capital expenditure in 2009 to acquire the soluble sachet manufacturing equipment from Budelpack in Holland. Resources on this important area have been increased during the year.
People
At the start of the year Colin McIntyre was appointed as Managing Director for the UK Division, following a valuable period in the Western Continental European management team. The senior management team in Europe was strengthened later in the year by the recruitment of two new Managing Directors for the Western European and Eastern European divisions, Andrea Barbier and Greg Krol, both of whom have blue chip backgrounds.
Once again significant demands were placed on most of the Group's employees during the year and they have risen to the challenges set. People development practices have been further improved by establishing common systems for appraisals and talent development, by defining core competencies and by working hard on communication. This is based on a strong culture of openness, ambition, communication and teamwork which ensures that all the Group's employees are aligned and engaged with the Group's objectives.
Objectives for the current year
The main objective for the current year is to continue to strengthen the McBride business model and the returns to shareholders. This will be done inter alia by:
Improving and investing more in new product development processes for our key growth categories.
Targeting improved customer service levels to ensure the needs of customers are met and to emphasise the difference between McBride and its Private Label competitors.
Improving efficiencies by introducing standard operating procedures across the whole group and further asset rationalisation.
Seeking suitable acquisition opportunities to enhance further the Group's earnings growth and geographical scope.
Investing further in the growth regions and categories to leverage further our capability and to support the major international retailers.
UK divisional review
Overview
The UK business had a good year in terms of sales but nonetheless faced the ongoing challenge of increasing input costs, particularly due to the weakness of Sterling against the Euro. The impact was mitigated by product re-engineering and cost restructuring but it was nevertheless necessary to raise selling prices across the business. Volumes were affected as retailers focused on price negotiations.
Good progress was made to strengthen the business going forward. The St. Helens factory, bought last year, was reconfigured in line with our plans and has allowed us to proceed with the closure of two factories in Coventry and Warrington which were not strategic to our needs. This, combined with a restructuring of overheads, has realised good annual savings. Factory efficiencies in terms of waste and labour efficiency were also improved.
Investment was made in new production capacity and in increased automation of our factories. New Product Development resources were increased and resulted in the development of some innovative new products during the year, notably soluble sachets of laundry liquid, concentrated low temperature laundry gel, encapsulated fabric conditioner and a range of branded products with strong environmental credentials under the brand 'Greenforce'. New Personal Care ranges were developed for Marks & Spencer and Superdrug.
McBride's determination and commitment to provide its customers with the very best combination of quality and price is reflected in the growth of the Private Label share of the market. We expect that this momentum will be maintained in the coming years.
Markets
The UK Household products market is relatively mature and increased by 3% in value but declined 2% in volume. Private Label products benefited from a high level of innovation in products, packaging and category development and also from increased trade focus; Private Label products sales grew by 5% in value on flat volumes. The highest growth is in laundry liquids, sachets and gels, household cleaners and automatic dishwashing tablets.
The overall UK Personal Care market grew by 4% in both value and volume terms in the year to June 2009, with particularly strong growth in deodorants and oral care.
The excellent balance between quality and cost is expected to continue to favour Private Label's share of the market in coming years.
(Source of market data: McBride estimates based on TNS retail selling price data)
Key business developments
Coming into the year, the division's priorities were to continue driving Private Label growth in core product categories, to continue delivering premium growth in Personal Care and to expand the range of niche brands and distribution channels. Actions taken included further increases in selling prices, in line with much of the industry, and changes to the way of managing customer relations, as well as value engineering and efficiency improvements. Our capital investment focused on new product capacity and cost reduction activities.
The focus of priorities on Personal Care was reflected in organic revenue growth of 11%, well ahead of the overall Private Label market.
Financial review
Revenue grew by 5% to £311.4 million (2008: £297.3m) and organic revenue increased by the same amount.
Operating profit, before amortisation of intangible assets and exceptional items, increased slightly to £16.2 million (2008: £15.2m) reflecting the positive impacts of growth, efficiencies and price increases offset by input cost inflation.
Capital investment in the year was focused on building incremental capacity in areas with good growth opportunities, such as laundry gels and sachets, and Personal Care and improving efficiencies with internal bottle blowing capabilities and line automation. Investment was £9.4 million in the year (2008: £12.4m).
Future developments
Our ongoing success depends critically upon the need to provide customers with excellent service levels and competitive and innovative new products. We have recently increased our New Product Development headcount by four people as we continue to strengthen our business to satisfy the needs of our increasingly ambitious customers.
McBride continues to press ahead with initiatives to improve efficiency. A three year programme has commenced to drive 'Lean' business processes throughout the division. In addition a major project has started to improve 'people engagement', further strengthening our communication and motivation skills.
The division's Personal Care business is expected to continue its recent record of good organic growth, reflecting a widening product range and the potential offered by the new St Helens facility.
Western Continental Europe business review
Overview
The Western Continental Europe business delivered a strong recovery in performance despite a difficult input cost environment with good organic growth of 2% in markets which were broadly flat. The division's Personal Care business continued to expand rapidly and Household products' profitability returned to an acceptable level, supported by strong sales growth in France, Belgium and Italy offset by a decline in Spain. Return on sales was 4.4%, up from 2.9% last year.
Margins were improved through a mixture of aggressive overhead control, product re-engineering and by exiting certain less profitable parts of the business, especially in Spain and the Netherlands. New contracts have been won at acceptable margins. Promotional activity has been focused on more profitable categories and a much more proactive management of product mix.
Markets
In the last year, the Household and Personal Care markets in Western Continental Europe have been impacted by the adverse environment but in all cases Private Label has grown share significantly, as consumers reach for products which deliver the best balance of quality and price.
France is McBride's largest market in Western Continental Europe and the Group is active in both its Household and Personal Care markets. TNS market data shows that for Household products, the French market in total declined by 2% but within this Private Label sales grew by 1%, with particularly strong share gain for Private Label in automatic dishwashing products, washing up liquid and specialist cleaners.
In Italy, McBride's second largest market in Western Continental Europe, where the Group operates predominantly in the Household market, the market grew by 2% and Private Label again increased share with annual growth in value terms of 5.5% in the year to June 2009 (source IRI).
Finally, in Germany the most recent Gfk data shows a decline of 2% in the market value but Private Label sales flat, giving an increased market share of 0.6% to Private Label.
Key business developments
The business has improved its margin through cost savings and the year on year impact of last year's selling price increases. It also achieved further operational efficiencies, for example reducing headcount through investment in automation and by producing 84% of bottles in house, reducing bought in quantities by 12%.
In the Household products business, there was good sales growth in specialist cleaners, dishwash tablets and laundry liquids offset by ongoing declines in laundry powder. France, Belgium, and Italy delivered good growth with success in increasing penetration of key retail accounts and retailers placing greater emphasis on Private Label sales.
The increasing focus on Personal Care delivered strong organic growth once more with a particularly good performance in bath care and deodorants.
Financial review
Total Western Continental Europe revenue was up 19% to £469.8 million (2008: £395.4m) of which 17% was due to positive currency exchange rate movements. The underlying business delivered a resilient performance with an excellent performance in Personal Care, which delivered 7% organic revenue growth.
Operating profit, before amortisation of intangible assets and exceptional items, was up by 83% to £20.9 million (2008: £11.4m).
Capital expenditure was £10.3 million (2008: £13.0m) reflecting investments in blow moulding and end of line automation and the soluble sachet equipment bought from Budelpack.
Future developments
The near term priority for the business is to continue investing in new product development, service and efficiency in order to offer the retailers the very best value for money in our priority categories. By continuing to monitor cash tightly our customers continue to benefit from our stable financial position, particularly important since a number of competitors have failed in the last year.
Further investment is planned in New Product Development, focused on our core priority categories. Category management skills will be further improved in order to persuade our customers of the extra profitability they can enjoy by driving their Private Label product ranges.
A major Private Label contract has been won to supply a large German based retailer and the group will benefit from continued new store opening programmes of existing customers.
Eastern Continental Europe business review
Overview
The Eastern Continental Europe business had a robust performance in what has been a challenging year because of the cancellation of a significant manufacturing contract with a branded company. This has been offset by a continued strong growth in Private Label sales. The business is operating in the Household and Personal Care sectors both of which have demonstrated consistent growth driven by increasing consumer demand with Private Label ranges becoming an increasingly important segment for our customers as they adapt their offers to match changing consumers' needs.
Markets
Both Household and Personal Care markets continue to grow dynamically in the region, in line with the broader economic environment. According to Euromonitor, McBride's current core Household and Personal Care markets increased in value terms by 4% and 5% respectively in 2009.
Private Label continued to increase its share of these markets as retailers adapt to consumer demands for value products but they remain at lower levels compared to Western Europe, providing ample scope for future growth. This positive outlook should be supported by retail growth and consolidation led by the major retailers.
Latest information from AC Nielsen reported total sales of Household and Personal Care products in Hungary to June 2009 grew 3% year-on-year. Private Label share of Household increased from 13% to 18% in the year to June 2009.
Key business developments
In 2009 the Eastern Continental European business went through a very dynamic period of change. Although McBride's Eastern Continental Europe sales were up only 3% and declined by 4% on a constant currency basis, it was heavily affected by the cancellation of a major sub-contracting contract during the year. Excluding this impact organic growth was 9%. The Private Label business in Poland continued to grow strongly with sales up 16%, while sales of branded products grew by only 2%. The increased core Private Label volume with a number of key accounts has offset the cessation of a major piece of contract manufacturing business.
The growth in Private Label sales has been achieved by building a fresh commercial approach based on new product development, innovation, customer service, further expansion of the product range in Poland and strengthened customer relationships. Until recently sales have been capacity constrained and actions have been taken to release additional capacity. The group remains confident in the potential for this region, particularly in the rapidly developing discount channel.
Export sales of McBride brands have grown substantially, up 48%, mainly to Kazakhstan and Belarus where increased marketing and trading activities have underpinned this growth.
A significant improvement in customer service was achieved during the year, achieving the Group target level of 98% for the first time, thanks to improvements in forecasting, stock control and systems.
Financial review
Reported Eastern Continental Europe revenue increased 3% to £33.2 million (2008: £32.1m) although on a constant currency basis sales were down 4%. Strong organic growth of 16% was achieved in the Polish Private Label business. Personal Care products performed well with sales now accounting for 38% of divisional revenue (2008: 36%).
Operating profit, before amortisation of intangible assets and exceptional items, was £2.0 million (2008: £2.1m). Capital expenditure was £0.8 million with significant investment in increased capacity and health and safety projects.
Future developments
A combination of the overall market environment and both ongoing and planned initiatives, give confidence that there are significant opportunities for further rapid development of the Group's activities in Eastern Europe.
The new product development programme will focus on categories with the greatest growth and margin potential, and investment behind our brands will be increased again.
Group financial review
Revenue
Group revenue increased 13% to £792.4 million (2008: £700.9m). The 4% organic growth, referred to above, reflects an 8% increase in Personal Care sales and 3% in Household. The 9% currency translation impact reflects a strengthening in both the Euro and Polish Zloty against Sterling.
By geographic origin, UK revenues grew 5% to £311.4 million (2008: £297.3m). Revenues in Western Continental Europe increased 19% to £469.8 million (2008: £395.4m) reflecting a 2% organic growth, with sales particularly strong in France and Italy, and 17% currency translation impact. Eastern Continental Europe's revenues increased 3% to £33.2 million (2008: £32.1m) comprising a 7% currency translation benefit partially offset by a 4% reduction in organic sales.
Operating profit
Group operating profit, before amortisation of intangible assets and exceptional items, improved 34% to £36.2 million (2008: £27.0m). The operating margin improved from 3.9% to 4.6% driven mainly by selling price increases generally, lower input costs in Western Continental Europe and purchasing savings. Group reported operating profit improved 28% to £27.4 million (2008: £21.4m).
Net finance costs
Reported net finance costs reduced to £5.2 million (2008: £5.7m), primarily reflecting lower interest rates.
Exceptional items
There was a £7.1 million pre-tax operating exceptional charge to the income statement in the year (2008: £4.0m). £4.5 million of this related to redundancy programmes in the UK and Western Continental Europe divisions and £2.6 million to other costs, mainly onerous lease provisions, asset write offs and dilapidation costs all in the UK.
Profit before tax and tax charge
Profit before tax increased 41% to £22.2 million (2008: £15.7m) and, excluding amortisation of intangible assets and exceptional items, increased 46% to £31.0 million (2008: £21.3m). The £5.6 million taxation charge (2008: £4.2m) represents a 25% effective rate (2008: 27%).
Earnings per share and dividend
Basic earnings per share (EPS) improved 44% to 9.2 pence (2008: 6.4p). Adjusted basic EPS, before amortisation of intangible assets and exceptional items, increased 48% to 12.9 pence (2008: 8.7p). On an adjusted basis, diluted EPS increased 49% to 12.8 pence (2008: 8.6p). The weighted average issued and diluted number of shares in the year used in calculating these EPS figures were 180.3 million and 181.5 million respectively (2008: 180.1m and 181.6m).
A final dividend of 4.3 pence per share is recommended, giving a full year dividend of 6.0 pence per share, a 7% increase on the prior year (2008: 5.6p). The final dividend, if approved by shareholders at the AGM on 26 October 2009, will be paid on 27 November 2009 to shareholders on the register on 23 October 2009. The ex-dividend date will be 21 October 2009. The £10.8 million total dividend relating to the year is covered 2.1 times (2008: 1.5 times) by post-tax profit before amortisation of intangible assets and exceptional items.
Cash flow
Cash generation was strong with net cash generated from operations, before exceptional items, of £61.8 million (2008: £49.4m). This included a £1.0 million net working capital inflow (2008: £0.5m inflow).
Capital expenditure in the year was £20.0 million (2008: £26.5m) with the higher 2008 spend impacted by acquisitions made in 2007. As in the previous year the main areas of investment were cost saving, new product development and essential replacement. There was £1.0 million of acquisition spend and a £6.3 million return of consideration relating to a prior year acquisition in the year (2008: nil).
Net interest payments reduced to £4.7 million (2008: £7.3m) reflecting primarily lower interest rates.
There was a cash outflow of £4.7 million (2008: £4.6m) relating to exceptional items, primarily related to redundancy programmes in the UK and Western Continental Europe divisions.
Ordinary dividend payments were £10.1 million (2008: £10.1m).
Net debt reduced by £20.9 million to £82.4 million (2008: £103.3m). This reduction was net of a £5.2 million debt increase caused by currency movements, primarily the strengthening of the Euro against Sterling on translation of Euro denominated debt.
Balance sheet
Group net assets at the year end reduced slightly to £118.5 million (2008: £118.9m). The reduction in net debt was more than offset by an increase in the pension liability, reduction in amortised intangible assets and translation movement impacts. The Euro strengthened against Sterling from 1.26 at 30 June 2008 to 1.17 at 30 June 2009.
Liabilities for pensions and other post-employment benefits increased by £6.4 million from last year to £14.2 million, net of associated deferred tax asset (2008: £7.8m). This increase was due to a higher deficit in the UK defined benefit pension scheme, from £5.7 million to £12.0 million driven primarily by a reduction in value of the scheme's assets.
The pre-tax, before amortisation of intangible assets and exceptional items, return on average capital employed improved from 12.8% to 17.1%. This improvement was driven by a higher profit margin, from 3.9% to 4.6%, and asset turnover, from 3.3 times to 3.7.
Treasury management
The Group's treasury activities focus on ensuring access to secure and cost-effective credit lines and managing liquidity. The Treasury Department is also engaged in mitigating the Group's exposures to foreign currency, interest rate and credit risks. All of these activities are overseen by a Group Treasury Committee, which meets regularly and operates within a framework of treasury policies approved by the Board.
Access to credit lines
The Group aims to maintain a strong balance sheet, with a relatively conservative level of debt to equity gearing. This has enabled us to secure a £150 million revolving credit facility and £25 million invoice discounting facility, both of which remain committed until February 2011. The Group also has access to working capital facilities amounting to over £40 million, which are generally uncommitted and subject to annual review. We maintain close working relationships with the small number of major banks which provide these credit lines.
We are confident that we will be able to extend or refinance these facilities, as and when required, and consequently that the Group is able to meet all of its foreseeable funding requirements. Together with the Group's strong cash flow generation, our credit lines also provide headroom for bolt-on acquisitions and contingencies.
Foreign currency risk
A significant proportion of the Group's net assets are located in Europe and denominated in Euros. The Group is therefore exposed to a translation risk, when these net assets are converted into Sterling at each balance sheet date. The Group hedges a substantial part of its foreign net assets with borrowings and swaps denominated in the same currency, in order to mitigate the risk of volatility in reported net assets and key financial ratios as a result of exchange rate fluctuations. The interest on these foreign currency borrowings and swaps provides a natural hedge of the translation exposure on our earnings denominated in the same currencies, and this cover is supplemented by the purchase of exchange rate options when cost-effective.
The Group's trading activities are generally invoiced in the domestic currency of the relevant operating entity. However, there are some material cross-border activities which create a transaction risk on conversion into domestic currency. The main such transaction exposure arises in the UK division, which incurs costs denominated in Euros on some of its imported goods. Our policy is to mitigate this risk, by hedging a proportion of the forecast exposures on a rolling 12-month basis, using forward currency deals.
Interest rate risk
Most of the Group's debt bears interest at floating rates, and is therefore exposed to a risk of rising interest rates. The Group has a policy of hedging part of this exposure with interest rate swaps, to mitigate against interest rate volatility.
Credit risk
The Group is exposed to potential credit-related losses in the event of non-performance by the counterparties to our treasury deals. This risk is mitigated by dealing only with the major banks which provide our credit facilities. We also aim to avoid concentration of those deals with any single counterparty.
Commodity price risk
The Group is exposed to changes in raw material prices, some of which may be indirectly linked to that of oil. There is generally no liquid or cost-effective market for direct hedging of such exposures. Where liquid markets do exist, there may not be an acceptable level of correlation with the price of our particular commodities. However, the Group mitigates this risk by entering into certain long-term purchasing contracts, and continues to investigate the practicalities and merits of hedging its remaining exposure to rising commodity prices.
Consolidated income statement
for the year ended 30 June 2009
| Pre exceptional items | Exceptional items (note 4) | Post exceptional items | Pre exceptional items | Exceptional items (note 4) | Post exceptional items | ||
| 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | ||
| Note | £m | £m | £m | £m | £m | £m | |
| Revenue | 3 | 792.4 | - | 792.4 | 700.9 | - | 700.9 |
| Cost of sales | (524.2) | - | (524.2) | (470.9) | - | (470.9) | |
| Gross profit | 268.2 | - | 268.2 | 230.0 | - | 230.0 | |
| Distribution costs | (52.7) | - | (52.7) | (47.2) | - | (47.2) | |
| Administrative costs | |||||||
| Before amortisation of intangible assets | (179.3) | (7.1) | (186.4) | (155.8) | (4.0) | (159.8) | |
| Amortisation of intangible assets | (1.7) | - | (1.7) | (1.6) | - | (1.6) | |
| Administrative costs including amortisation of intangible assets | (181.0) | (7.1) | (188.1) | (157.4) | (4.0) | (161.4) | |
| Operating profit | 3,4 | 34.5 | (7.1) | 27.4 | 25.4 | (4.0) | 21.4 |
| Financial income | 6.2 | - | 6.2 | 6.0 | - | 6.0 | |
| Financial expenses | (11.4) | - | (11.4) | (11.7) | - | (11.7) | |
| Net financing costs | (5.2) | - | (5.2) | (5.7) | - | (5.7) | |
| Profit before tax | 29.3 | (7.1) | 22.2 | 19.7 | (4.0) | 15.7 | |
| Taxation | 7 | (7.4) | 1.8 | (5.6) | (5.3) | 1.1 | (4.2) |
| Profit for the year attributable to equity holders of the parent | 21.9 | (5.3) | 16.6 | 14.4 | (2.9) | 11.5 | |
| All activities relate to continuing operations | |||||||
| Earnings per ordinary share (pence) | 6 | ||||||
| Basic | 9.2 | 6.4 | |||||
| Diluted | 9.1 | 6.3 | |||||
| Dividends | |||||||
| Paid in year (£m) | 10.1 | 10.1 | |||||
| Paid in year (pence per share) | 5.6 | 5.6 | |||||
| Proposed (£m) | 7.7 | 7.0 | |||||
| Proposed (pence per share) | 4.3 | 3.9 | |||||
Consolidated balance sheet
at 30 June 2009
| 2009 | 2008 | ||||
| Note | £m | £m | |||
| Non-current assets | |||||
| Intangible assets | 35.4 | 42.1 | |||
| Property, plant and equipment | 189.2 | 187.3 | |||
| Other non-current assets | 0.7 | 0.5 | |||
| Deferred tax | 2.4 | - | |||
| 227.7 | 229.9 | ||||
| Current assets | |||||
| Inventories | 68.0 | 66.0 | |||
| Trade and other receivables | 132.8 | 135.3 | |||
| Cash and cash equivalents | 2.8 | 4.4 | |||
| Assets classified as held for sale | - | 0.9 | |||
| 203.6 | 206.6 | ||||
| Total assets | 3 | 431.3 | 436.5 | ||
| Current liabilities | |||||
| Interest bearing loans and borrowings | 26.5 | 24.5 | |||
| Trade and other payables | 190.3 | 183.3 | |||
| Current tax payable | 1.3 | - | |||
| Provisions | 2.3 | 2.0 | |||
| 220.4 | 209.8 | ||||
| Non-current liabilities | |||||
| Interest bearing loans and borrowings | 58.7 | 83.2 | |||
| Pensions and other post-employment benefits | 18.9 | 10.0 | |||
| Provisions | 0.5 | - | |||
| Deferred tax | 14.3 | 14.6 | |||
| 92.4 | 107.8 | ||||
| Total liabilities | 3 | 312.8 | 317.6 | ||
| Net assets | 118.5 | 118.9 | |||
| Equity | |||||
| Issued share capital | 18.0 | 18.0 | |||
| Share premium account | 143.5 | 143.0 | |||
| Other reserves | (2.1) | 0.3 | |||
| Retained earnings | (40.9) | (42.4) | |||
| Total equity and reserves | 118.5 | 118.9 |
M W Roberts
Director
Consolidated cash flow statement
for the year ended 30 June 2009
| 2009 | 2008 | ||||
| Note | £m | £m | |||
| Profit before tax | 22.2 | 15.7 | |||
| Net financing costs | 5.2 | 5.7 | |||
| Pre-tax exceptional charge in the year | 7.1 | 4.0 | |||
| Share based payments | 0.5 | - | |||
| Loss on sale of property, plant and equipment | 0.3 | 0.1 | |||
| Depreciation | 23.8 | 21.8 | |||
| Amortisation of intangible assets | 1.7 | 1.6 | |||
| Operating cash flow before changes in working capital | 60.8 | 48.9 | |||
| Decrease in receivables | 7.6 | 8.7 | |||
| Decrease in inventories | 0.2 | - | |||
| Decrease in payables | (6.8) | (8.2) | |||
| Cash flow in respect of exceptional items | (4.7) | (4.6) | |||
| Cash generated from operations | 57.1 | 44.8 | |||
| Interest paid | (6.0) | (7.5) | |||
| Taxation paid | (3.7) | (3.8) | |||
| Net cash from operating activities | 47.4 | 33.5 | |||
| Cash flows from investing activities | |||||
| Proceeds from sale of property, plant and equipment | 1.8 | 0.1 | |||
| Acquisition of property, plant and equipment | (20.0) | (26.4) | |||
| Acquisition of intangible assets | - | (0.1) | |||
| Acquisition of businesses, net of cash acquired | 5 | 5.3 | - | ||
| Interest received | 1.3 | 0.2 | |||
| Forward contracts used in net investment hedging | (0.6) | (11.4) | |||
| Net cash used in investing activities | (12.2) | (37.6) | |||
| Cash flows from financing activities | |||||
| Proceeds from issue of share capital | 0.4 | 1.5 | |||
| Repurchase of own shares | - | (1.4) | |||
| Increase in borrowings | 7.1 | 32.5 | |||
| Repayment of borrowings | (40.8) | (20.2) | |||
| Payment of finance lease liabilities | (0.9) | (0.9) | |||
| Dividends paid | (10.1) | (10.1) | |||
| Net cash (used in)/generated from financing activities | (44.3) | 1.4 | |||
| Net decrease in cash and cash equivalents | (9.1) | (2.7) | |||
| Cash and cash equivalents at start of year | (3.4) |
| (1.0) | ||
| Effect of exchange rate fluctuations on cash held | 2.2 | 0.3 | |||
| Cash and cash equivalents at end of year | (10.3) | (3.4) | |||
| Reconciliation of cash and cash equivalents per the balance sheet and cash flow statement | |||||
| Cash and cash equivalents per the balance sheet | 2.8 | 4.4 | |||
| Overdrafts | (13.1) | (7.8) | |||
| Cash and cash equivalents per the cash flow statement | (10.3) | (3.4) | |||
Reconciliation of net cash flow to movement in net debt
for the year ended 30 June 2009
| 2009 | 2008 | |||||
| £m | £m | |||||
| Decrease in cash and cash equivalents in the year | (9.1) | (2.7) | ||||
| Cash outflow/(inflow) from movement in debt | 33.7 | (12.3) | ||||
| Movement on finance leases | 0.9 | 0.9 | ||||
| Change in net debt resulting from cash flows | 25.5 | (14.1) | ||||
| Finance lease additions | - | (0.2) | ||||
| Translation differences | (4.6) | (8.1) | ||||
| Movement in net debt in the year | 20.9 | (22.4) | ||||
| Net debt at the beginning of the year | (103.3) | (80.9) | ||||
| Net debt at the end of the year | (82.4) | (103.3) | ||||
| Consolidated statement of recognised income and expense | ||||||
| for the year ended 30 June 2009 | ||||||
| 2009 | 2008 | |||||
| £m | £m | |||||
| Foreign exchange translation differences | 6.9 | 19.8 | ||||
| Net loss on hedge of net investment in foreign subsidiaries | (6.4) | (18.9) | ||||
| Effective portion of changes in fair value cash flow hedges | (3.5) | (0.6) | ||||
| Net changes in fair value of cash flow hedges transferred to profit or loss | 0.6 | 0.2 | ||||
| Tax on items taken directly to equity | 4.3 | 0.6 | ||||
| Actuarial loss | (9.7) | (2.0) | ||||
| Income and expense recognised directly in equity | (7.8) | (0.9) | ||||
| Profit for the year | 16.6 | 11.5 | ||||
| Total recognised income and expense for the year attributable to equity shareholders of the parent | 8.8 | 10.6 | ||||
NOTES TO THE FINANCIAL STATEMENTS
| 1) Exchange rates | ||||
| The exchange rates against Sterling used for the periods were as follows: | ||||
| 2009 | 2008 | 2009 | 2008 | |
| Average rate | Closing rate | |||
| Euro | 1.17 | 1.37 | 1.17 | 1.26 |
| Polish Zloty | 4.67 | 4.95 | 5.24 | 4.23 |
| Czech Koruna | 30.4 | 36.1 | 30.5 | 30.2 |
| Hungarian Forint | 315.1 | 346.8 | 319.9 | 297.0 |
2) Basis of preparation
This financial information has been prepared in accordance with IFRS adopted for use in the EU ("adopted IFRS") in accordance with EU law (IAS Regulation EC 1606/2002). This financial information has been prepared on the basis of recognition and measurement requirements of adopted IFRSs as at 30 June 2009.
3) Segment information
Segment information is presented below in respect of the Group's geographic and business segments. The primary format, geographic segments, is based on the Group's operating divisions and internal reporting structure. Transfer prices between segments are set on an arm's length basis. Segment revenue and profit include transfers between segments which are eliminated on consolidation.
| Geographic segments | United Kingdom | Western Continental Europe | Eastern Continental Europe | Elimination / China** | Total | |||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| External revenue | 308.4 | 292.5 | 452.4 | 377.2 | 31.6 | 31.2 | - | - | 792.4 | 700.9 |
| Inter-segment revenue | 3.0 | 4.8 | 17.4 | 18.2 | 1.6 | 0.9 | (22.0) | (23.9) | - | - |
| Total segment revenue | 311.4 | 297.3 | 469.8 | 395.4 | 33.2 | 32.1 | (22.0) | (23.9) | 792.4 | 700.9 |
| Segment profit before amortisation of intangible assets | 16.2 | 15.2 | 20.9 | 11.4 | 2.0 | 2.1 | (0.4) | (0.1) | 38.7 | 28.6 |
| Amortisation of intangible assets | (0.4) | (0.5) | (1.2) | (1.0) | (0.1) | (0.1) | - | - | (1.7) | (1.6) |
| Segment profit | 15.8 | 14.7 | 19.7 | 10.4 | 1.9 | 2.0 | (0.4) | (0.1) | 37.0 | 27.0 |
| Corporate costs* | (2.5) | (1.6) | ||||||||
| Exceptional items (see note 4) | (7.1) | (4.0) | ||||||||
| Operating profit | 27.4 | 21.4 | ||||||||
| Net finance costs | (5.2) | (5.7) | ||||||||
| Taxation | (5.6) | (4.2) | ||||||||
| Profit for the year | 16.6 | 11.5 | ||||||||
*Corporate costs relate primarily to head office costs that are not reallocated to one of the geographic segments.
** includes China £0.4 million Household sales which are all intergroup and China operating loss of £0.4 million for the year.
| United Kingdom | Western Continental Europe | Eastern Continental Europe | Corporate* | Total | ||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Segment assets | 167.9 | 165.4 | 240.0 | 247.0 | 18.7 | 22.3 | 4.7 | 1.8 | 431.3 | 436.5 |
| Segment liabilities | (99.5) | (92.1) | (143.7) | (120.8) | (5.1) | (6.7) | (64.5) | (98.0) | (312.8) | (317.6) |
| Capital expenditure* | 9.4 | 12.4 | 10.3 | 13.0 | 0.8 | 0.8 | - | 0.3 | 20.5 | 26.5 |
| Amortisation and depreciation | 8.6 | 8.7 | 16.1 | 14.1 | 0.7 | 0.6 | 0.1 | - | 25.5 | 23.4 |
*Corporate liabilities include external debt and tax liabilities. Capital expenditure includes property, plant and equipment and intangible assets
3) Segment information (continued)
| Business segments | Household | Personal Care | Total | |||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | £m | |
| Segment revenue | 648.5 | 575.0 | 143.9 | 125.9 | 792.4 | 700.9 |
| Segment profit before amortisation of intangible assets | 33.0 | 21.9 | 5.7 | 6.7 | 38.7 | 28.6 |
| Amortisation of intangible assets | (1.7) | (1.5) | - | (0.1) | (1.7) | (1.6) |
| Segment profit | 31.3 | 20.4 | 5.7 | 6.6 | 37.0 | 27.0 |
| Corporate costs* | (2.5) | (1.6) | ||||
| Exceptional items (see note 4) | (7.1) | (4.0) | ||||
| Operating profit | 27.4 | 21.4 | ||||
| *Corporate costs relate primarily to head office costs that are not reallocated to one of the business segments. | ||||||
| Household | Personal Care | Corporate | Total | ||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | £m | £m | £m | ||
| Segment assets | 331.0 | 346.2 | 95.6 | 88.5 | 4.7 | 1.8 | 431.3 | 436.5 | |
| Capital expenditure* | 17.0 | 16.4 | 3.5 | 9.8 | - | 0.3 | 20.5 | 26.5 | |
| *Capital expenditure includes property, plant and equipment and intangible assets. | |||||||||
External revenue by destination
Segmental information is also presented below in respect of external revenue by destination.
| United Kingdom | Western Continental Europe | Eastern Continental Europe and Rest of World | Total | |||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| External revenue by destination | 290.1 | 279.3 | 442.1 | 362.1 | 60.2 | 59.5 | 792.4 | 700.9 |
4) Exceptional items
The Group presents certain items as 'exceptional'. These are items which, in management's judgement, need to be disclosed by virtue of their size or incidence in order to obtain a proper understanding of the financial information.
There was a £7.1 million pre-tax operating exceptional charge to the income statement in the year relating to restructuring programmes in the UK and Western Continental Europe divisions. Included in this charge was £4.5 million for redundancy and there were also asset write offs and onerous lease provisions in the UK.
The £3.1 million 2008 pre-tax operating exceptional charge related mainly to redundancy programmes in the UK and Western Continental Europe divisions. Additionally £0.9 million was included for the costs of an aborted acquisition.
In terms of segment analysis in note 3, the exceptional charge relates to the UK £5.1 million (2008: £2.0m), Western Continental Europe £2.0 million (2008: £1.3m) and Corporate £nil (2008: £0.7m), on a geographic basis, and Household £6.0 million (2008: £2.9m), Personal Care £1.1 million (2008: £0.4m) and Corporate £nil (2008: £0.7m) on a business basis.
5) Acquisitions
On 5 June 2009, the Group purchased from the Administrator of 360 Brands Limited certain assets for a total consideration of £1.0 million. These comprised predominantly brands, for which the fair values were assessed to be equal to the consideration paid.
The Group has recovered part of the consideration paid relating to a prior period acquisition amounting to £6.3 million, which has reduced the goodwill arising on this acquisition.
6) Earnings per share
Basic earnings per ordinary share is calculated on profit after tax, attributable to equity holders of the parent, divided by the weighted average number of ordinary shares in issue during the year in accordance with IAS 33.
| 2009 | 2008 | ||
| Total earnings (£m) | a | 16.6 | 11.5 |
| Weighted average number of ordinary shares | b | 180,288,282 | 180,121,808 |
| Basic earnings per share (pence) | a/b | 9.2 | 6.4 |
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on assumption of conversion of all potentially dilutive ordinary shares.
During the year, the Company had three categories of potentially dilutive ordinary shares: share options issued whose exercise price is less than the average price of the Company's ordinary shares during the year, share awards with no option price and shares allocated to an approved Save As You Earn scheme.
| 2009 | 2008 | ||
| Weighted average number of ordinary shares (million) | b | 180.3 | 180.1 |
| Effect of dilutive share options (million) | 0.2 | 0.3 | |
| Effect of dilutive share awards (million) | 1.0 | 1.1 | |
| Effect of dilutive SAYE scheme shares (million) | - | 0.1 | |
| c | 181.5 | 181.6 | |
| Diluted earnings per share (pence) | a/c | 9.1 | 6.3 |
Adjusted basic earnings per share applies to earnings excluding exceptional items and amortisation of intangible assets since the directors consider that this gives additional information as to the underlying performance of the Group.
| 2009 | 2008 | ||
| £m | £m | ||
| Earnings used to calculate basic and diluted EPS | a | 16.6 | 11.5 |
| Exceptional items after tax | 5.3 | 2.9 | |
| Amortisation of intangible assets after tax | 1.3 | 1.2 | |
| Earnings before exceptional items and amortisation of intangible assets | d | 23.2 | 15.6 |
| Adjusted basic earnings per share (pence) | d/b | 12.9 | 8.7 |
| Adjusted diluted earnings per share (pence) | d/c | 12.8 | 8.6 |
7) Taxation
The £5.6 million tax charge for the year ended 30 June 2009 (2008: £4.2m) consists of £2.0 million (2008: £1.6m) of UK tax and £3.6 million (2008: £2.6m) of overseas tax.
8) Other notes
The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2009 or 2008. Statutory accounts for 2008, which were prepared under IFRS, as adopted by the EU, have been delivered to the Registrar of Companies. The auditors have reported on those accounts. The annual financial information presented in this the preliminary announcement for the year ended 30 June 2009 is based on, and is consistent with, that in the Group's audited financial statements for the year ended 30 June 2009, and the financial statements will be sent to shareholders in due course. The auditors report on the financial statements is unqualified and does not contain any statement under section 498(2) or (3) of the Companies Act 2006.
The Annual Report for 2009 will be issued to shareholders on 23 September 2009 and will be available from the company secretary at the Company's Registered Office, 28th Floor, Centre Point, 103 New Oxford Street, London, WC1A 1DD and from the Group's website at www.mcbride.co.uk; the Annual General Meeting will be held on 26 October 2009.
If approved at the Annual General Meeting on 26 October 2009, a final dividend of 4.3 pence per share will be paid on 27 November 2009 to shareholders on the register at 23 October 2009. The ex-dividend date will be 21 October 2009.