Mcbride Regulatory News (MCB)

6 Sep 2007 07:02

McBride PLC06 September 2007 6 September 2007 McBride plc McBride plc, Europe's leading provider of Private Label Household and PersonalCare products, announces its preliminary results for the year ended 30 June 2007 • Revenue up 10% to £592.0 million (2006: £540.1m) supported by improving organic growth • Adjusted operating profit up 11% to £34.5 million (2006: £31.2m)(1); reported operating profit up 17% to £31.9 million (2006: £27.2m) • Adjusted basic earnings per share up 10% to 13.0 pence (2006: 11.8p) (1); reported basic earnings per share up 16% to 11.9 pence (2006: 10.3p) • Return on capital employed of 22.1% (2006: 24.3%)(1) reflecting a higher capital base following recent acquisition activity • Proposed final dividend up 11% to 3.9 pence (2006: 3.5p), making a total for the year of 5.6 pence (2006: 5.1p), up 10% • Return to organic growth in Western Continental Europe • Significant acquisition activity focused on targeted geographies, products and distribution channels, particularly strengthening Western Continental Europe business (1) Adjusted operating profit, adjusted basic earnings per share and return on capital employed figures are calculated before amortisation of intangible assets and exceptional items Miles Roberts, Chief Executive, commented: "McBride has delivered a strong performance in a year of significant activityand challenges for the Group. We recorded double digit growth in revenue,operating profits and dividends whilst completing five acquisitions and managingthe effects of continued input cost pressure. Particularly notable is the progress made in improving the underlyingperformance of our Western Continental Europe business where decisive managementactions delivered improving results towards the end of the year. The Group has made a satisfactory start to the new financial year. Withcontinued focus on efficiency and organic growth, good progress should be madein the current year, in line with the Board's expectations. Market conditionsremain very competitive, particularly as raw materials costs continue toincrease. Our recent acquisitions are delivering the expected increase infinancial and operating scale and present opportunities to extract additionalvalue from synergies." For further information please contact: McBride plcMiles Roberts, Chief Executive 01494 607050Bob Beveridge, Group Finance Director 01494 607050 Financial DynamicsAndrew Dowler 020 7831 3113 McBride is Europe's leading provider of Private Label Household and PersonalCare products, supplying over 1.3 billion products each year to Europe's leadingretailers. It employs over 5,000 people in 11 European countries. For moreinformation, visit www.mcbride.co.uk Overview This has been a year of significant development and achievement for the Group.The Group returned to broad based organic revenue growth, maintained operatingmargins in a challenging input cost environment and increased profits, earningsper share and dividends at the same time as completing five value enhancingacquisitions. • Revenues were up in all three divisions reflecting initialcontributions from recent acquisitions and supported by organic growth in the UKand Eastern Continental Europe and a return to organic growth in WesternContinental Europe in the second half. • Group organic revenue growth of 2% at constant exchange ratescompared to a decline of 1% in the prior year. • Acquisitions have strengthened the Group's position in our identifiedpriority product categories and targeted geographic markets and distributionchannels. • Marketing, new product development and management were strengthenedsignificantly in Eastern Continental Europe and country and customer focusenhanced across the business. • Labour productivity improved and other efficiencies and cost savingswere secured. • In the UK, revenue increased 11% to £277.1 million (2006: £249.8m)due to 3% organic growth and £20.8 million (2006: £1.6m) of revenue generatedfrom recent acquisitions. Operating profit, before amortisation of intangibleassets and exceptional items, grew in line with revenue to £24.5 million (2006:£22.0m). • In Western Continental Europe, revenue increased 9% to £304.2 million(2006: £280.3m) primarily reflecting the contribution of acquisitions but alsoimproved organic revenue in the second half. Operating profit, beforeamortisation of intangible assets and exceptional items, was up 16% to £10.4million (2006: £9.0m). • In Eastern Continental Europe, revenue increased 14% to £25.0 million(2006: £21.9m) due mostly to organic growth and reflecting the buoyant marketconditions in the region. Operating profit, before amortisation of intangibleassets and exceptional items, declined slightly to £1.5 million (2006: £1.6m)reflecting a year of significant investment across the business. Markets McBride operates in large and growing markets. The West European household and personal care markets had a combined value of£48 billion (at retail selling prices) in 2006 and they grew at 1.8% and 3.7%per annum respectively in the 5 years to the end of 2006. These trends areexpected to continue. McBride's specific private label markets have consistentlyoutperformed the overall household and personal care markets, growing by 4.8%and 5.1% per annum in the 5 years to the end of 2006 in West European householdand personal care products respectively. Within McBride's overall markets there are specific product categories andgeographic regions that have particularly attractive dynamics and the Group isfocused on many of these to drive superior growth. In household products, automatic dishwashing products have deliveredconsistently strong growth - 6.8% per annum across Western Europe in the 5 yearsto 2006 - driven by the trend of increasing penetration of automatic dishwashingmachines in homes. Above average market growth has occurred over the same periodin other household product categories such as air care and household cleanersdriven by factors such as convenience and high levels of product innovation.Personal care products also have a well established record of superior growthrelative to household products, having grown at 3.7% per annum across WesternEurope in the 5 years to the end of 2006. The countries of Central and Eastern Europe are enjoying outstanding growth inboth the household and personal care markets which had a combined value of £11.6billion (at retail selling prices) in 2006. Over the 5 years to the end of 2006,these markets grew at 12% per annum, the high growth reflecting increasingdisposable incomes, growing consumer affluence and aspiration and intense focusfrom industry participants. High growth is forecast by market analysts tocontinue. McBride has been present in these markets for many years and hasbenefited from these overall market dynamics. McBride will be looking tocapitalise further on the exciting growth potential in these markets in thecoming years. (Source of market data: Euromonitor; market sizes and growth rates based onsterling figures using actual exchange rates) Strategy and objectives McBride has a well-defined strategy for enhancing shareholder value. At itscore, it is to lead the growth of private label household and personal careproducts in Europe. As the largest private label producer in these markets, in order to deliveragainst this strategy we need to demonstrate real commercial leadershipcontinuously. This means developing and maintaining close partnerships with ourcustomers as well as a consistent and intimate understanding of our geographicand product markets. We must also have clarity of purpose in focusing on themost attractive opportunities. In terms of our customers, focus is increasingly on devising and implementingprivate label category development plans that drive private label growth withintheir businesses. We are focusing on all retail formats including theconvenience and discount sectors. We have identified five product categories - automatic dishwashing tablets,specialist cleaners, laundry liquids, air care and personal care - that webelieve offer the greatest medium term growth prospects. Innovation and new product development is the lifeblood of our business. Ourresources are focused on the key themes of improving the convenience andenvironmental performance of our products as well as developing more premiumproduct ranges. Allied to commercial leadership we must deliver outstanding sustainedoperational performance that positions us as our customers' partner of choice.This means a relentless focus on delivering consistently excellent customerservice levels. It also requires continuous attention to reducing costs byleveraging our scale, improving efficiency and intense cost management focus aswell as ensuring the sustainability of our activities. Where appropriate, acquisitions of complementary businesses are considered whenthey help to accelerate the fulfilment of the Group's strategic objectives. The year to 30 June 2007 was a successful one for McBride but in our fast pacedbusiness environment we must always be looking forward, looking to capitalisefully on the most attractive opportunities we have identified whilst activelymanaging challenges as they arise. To achieve this we are further stepping up the intensity with which we managethe business, reflected in the broader range of business objectives we have setourselves for the coming year:- • improve customer partnership and service, category development and product innovation• deliver further improvements in efficiency and reduction in costs• grow our priority product categories• further improve performance in Western Continental Europe• accelerate growth in Eastern Continental Europe• take advantage of further suitable acquisition opportunities as they arise Business performance Introduction Our significant achievements in the year reflect successful execution againstthe objectives we set ourselves and the outstanding dedication of all our peoplein making McBride successful. Most notably, the performance of our existing Western Continental Europebusiness improved after a difficult period in its main French household productsmarket. The improvement reflects decisive management action to return to topline growth, exit unprofitable activities and enhance operating efficiencies. Wedelivered above market organic revenue growth in personal care and Italian andSpanish household products and saw a return to growth in French householdproducts in the second half. Further, profits, margins and return on capitalemployed were higher in the second half due to the underlying business and thecontribution of recent acquisitions. Our other businesses also performed well. Eastern Continental Europe saw strongdouble digit organic revenue growth. The UK delivered higher revenues andprofits, driven by the contribution from acquisitions and improved organicrevenue growth of 3%. Commercial leadership Our focus on the priority product categories of automatic dishwashing tablets,specialist cleaners, laundry liquids, air care and personal care producedorganic revenue growth in these categories well ahead of the Group average.These product categories accounted for nearly half of Group revenue in the year. In terms of our customers, we made good progress with selected customers indeveloping stronger partnerships to drive private label growth within theirbusinesses. Where we achieved this more active marketing of their private labelhousehold and personal care product ranges, encouraging results were seen withincreased volumes and new business wins. We have also put significantly moreresource closer to our customers through dedicated country and customer teamsacross our three businesses. Innovation and new product development is the lifeblood of our business and iscritical to supporting McBride's future growth. Our resources are focused on thekey themes of improving the convenience and environmental performance of ourproducts and developing more premium product ranges. Developments in theenvironmental arena are broad, ranging from improving product compaction,increasing the use of recycled materials in our products, reducing packaging andmaking our products more ecologically sensitive. In particular, the year saw thelaunch of a record number of ecologically sensitive products for a number of UKretailers. Operational leadership Customer service is our main operational priority and a highly visible benchmarkthat influences directly our ability to maintain commercial leadership andsupport the Group's overall growth strategy. We measure our success in this areaby reference to success in delivering products ordered by customers in thecorrect volumes and within agreed timescales. McBride sells over 1.3 billionproducts each year and in 2007 service levels were consistent with the prioryear at 97% with a particularly good performance in the second half which sawservice levels reach 98%. Our focus on cost reduction is built on a culture of continuous improvement witha broad range of current initiatives, such as alternative sourcing of materials,improving labour productivity and enhancing other operating efficiencies such asenergy efficiency and levels of waste. In 2006 the Group opened an office in Hong Kong to enhance its ability to sourceraw materials, product components, finished products and machinery atcompetitive prices from Asia. Sourcing of materials from Asia is expected toplay an increasingly important role in the Group's overall cost managementactivities. Significant advances were made in labour productivity in our Western ContinentalEurope business driven by investments to increase automation that enabledheadcount to be reduced as well as continuous improvement activities assisted bygreater employee engagement. Energy efficiency also improved, by around 6% year on year. We also continued tobenefit from the ongoing move towards more compact and concentrated products. Aswell as helping enhance profitability, these developments illustrate our strongcommitment to improving the long-term sustainability of our business. Acquisitions During the year we made five acquisitions that strengthen the Group's positionin our identified priority product categories and our targeted geographicmarkets and distribution channels, in particular transforming our WesternContinental Europe business. The most important of these were the acquisitionsof Henkel's European private label household products business and Dasty Italia. The acquisition from Henkel is based mainly on a major automatic dishwashing(ADW) production facility in Luxembourg. It transforms our ADW capability on agroup wide basis. It also provides a platform to develop further our presence inGermany. The acquisition also includes a smaller specialist cleaners business inthe UK. Dasty Italia doubles our scale in Italy, one of our fastest growinghousehold products markets, and brings additional expertise in specialistcleaners. These acquisitions have also significantly increased our penetrationof the discount retail sector. The other acquisitions in the year were CoventryChemicals and Darcy Industries in the UK and Schneider in Poland. The acquisitions were debt financed so before the end of the year, the Group,with the support of its bankers, increased its committed debt facilities to £150million, on no less favourable terms, to reflect the increased scale of thebusiness and provide flexibility to make further acquisitions should suitableopportunities arise. These acquisitions are expected to enhance earnings per share, beforeamortisation of intangible assets and exceptional items, in the first fullfinancial year of ownership and overall they are performing in line with plan. In addition, there are significant opportunities to extract incremental valuefrom these acquisitions. These will be balanced towards cost synergies in thenear term. Areas of particular focus will be improving raw material procurementcosts, increased internal bottle blowing and reconfiguring our manufacturingcapabilities to optimise production efficiency. Reconfiguring our manufacturing capabilities has commenced with some productionhaving moved between acquired and existing sites to enhance efficiencies. Weexpect further opportunities to arise as the new financial year progresses. People Our business succeeds because of the dedication of our employees. It is theirdetermination and hard work that creates value for our shareholders. This yearhas been particularly notable with us welcoming a large number of new peopleinto the business as a result of our significant acquisition activity. We areworking very hard to ensure that we get the best out of our people throughcontinuous improvement in the quality and depth of our management and by settingclear expectations of the performance that the business expects from allemployees. Sincerest thanks go to all our employees for their outstandingcontributions and ongoing commitment to the success of McBride. Shareholder returns The Group's continued strong cash generative characteristics has resulted in theBoard recommending an increase of 11% in the final dividend to 3.9 pence pershare (2006: 3.5p), giving a total dividend per share of 5.6 pence (2006: 5.1p). Board At the end of June 2007, Lord Allen Sheppard retired from the Board, having beenChairman since the Group's creation in 1993. Allen made a huge contribution tothe Group's growth and development over many years and leaves us well placed forthe future. We thank Allen for his commitment and leadership and express ourbest wishes for the future. Iain Napier was appointed as his successor and welook forward to benefiting from his strong experience of international consumergoods markets combined with proven leadership skills. Outlook The Group has made a satisfactory start to the new financial year. Withcontinued focus on efficiency and organic growth, good progress should be madein the current year, in line with the Board's expectations. Market conditionsremain very competitive, particularly as raw material costs continue toincrease. Our recent acquisitions are delivering the expected increase infinancial and operating scale and present opportunities to extract additionalvalue from synergies. UK business review Markets The overall UK household products market grew 4% in value terms in the year toJune 2007, whilst in volume terms it was broadly stable. Private labelperformance was similar to the overall market, with 3% value growth, resultingin flat private label value and volume shares. The household products market wasdriven by growth of 7% in air care, 7% in automatic dishwashing products, 5% infabric conditioner and 4% in household cleaners. Private label saw similardrivers to the overall market in terms of categories driving growth. In personal care the overall UK market grew by 2% and 4% in volume and valueterms respectively in the year to June 2007, reflecting growth in higher valueproducts and some price inflation. Private label grew ahead of the market invalue terms at 6% over the year, driven by growth in skin care products. Productcategories displaying strong growth in the overall market included skin care,liquid soap, shaving products, deodorants and mouthwash. As a result, privatelabel's value and volume shares were 18% and 24% respectively (2006: 17% and25%). (Source of market data: McBride estimates based on Taylor Nelson Sofres retailselling price data) Business performance During the year there was continued focus on improving operational capabilityand efficiency through improved working practices and investment in new plantand equipment. In particular, a significant improvement in energy efficiency wasachieved in the year. Significant investment went into both our household and personal care productsbusinesses and into both production assets and further increasing our internalbottle blowing capabilities. A total of £9.1 million (2006: £8.7m) was investedin the year including in production and filling lines for automatic dishwashingtablets, fabric conditioner and bleach. These are all contributing to deliveringgrowth and efficiency in our business. Acquisitions During the year, we made three acquisitions, the UK element of the Henkeltransaction, Coventry Chemicals and Darcy Industries, for a combined cashconsideration of £19.7 million. The Henkel and Darcy Industries acquisitionsreflect our objective to increase our presence in our priority productcategories, in this case automatic dishwashing tablets and specialist cleaningrespectively. Coventry Chemicals brought additional household product volumes,further driving economies of scale. Significant integration work was completed relating to these acquisitions andthat from Sanmex International in the prior year, including transfer ofproduction from Sanmex International and Coventry Chemicals to the Group'sexisting facilities and completing a SAP system implementation for the UKbusiness acquired from Henkel. Financial review Revenue grew by 11% to £277.1 million (2006: £249.8m). With £20.8 million (2006:£1.6m) of revenue attributable to the Sanmex International, Coventry Chemicals,Henkel and Darcy Industries acquisitions, 3% organic revenue growth wasachieved. The personal care business had a particularly successful year, withorganic revenue growth of 12%. In household products underlying revenue wasflat, whilst reported revenue was up 10%. The year was also characterised bystronger revenues in the second half reflecting the contribution ofacquisitions. Our profits also improved, reflecting both increased revenues and our success inminimising the impact of rising input costs. Operating profit, beforeamortisation of intangible assets and exceptional items, grew in line withrevenues to £24.5 million (2006: £22.0m). Western Continental Europe business review Markets In the year to June 2007, the value of the total household products markets grewin all McBride's core markets in Western Continental Europe, with growth rangingfrom 2% in France, 4% in Italy and Germany to 9% in Spain. Private label grew inall these territories in value terms with growth typically ahead of the overallmarket. In our largest French market, household and personal care markets grew 2% and 1%respectively compared with a 3% decline in the prior year. Private labelhousehold and personal care products continued the growth reported at the halfyear with 4% and 6% growth respectively in the year to June 2007 resulting inincreased shares of the French market. Recent legislation to allow supermarkets to advertise their private label rangescame into force in France on 1 January 2007 and should provide further impetusfor private label growth in France. Private label laundry liquids and automaticdishwashing products both performed well, registering 8% year on year growth. In Italy, private label washing up liquids registered a 12% growth in sales withlaundry liquids up 5% whilst private label automatic dishwashing productsdeclined 6%. In Spain, private label laundry liquids registered a strong performance, with22% growth in sales in the year. (Source of market data: IRI and Secodip) Business performance We entered the year with a tough retail market, particularly in Northern Europe,and continuing significant input cost inflation as well as a recently completedbusiness reorganisation. We were also committed to returning the business to topline growth. One of the key objectives of the business reorganisation was the creation of amore customer focused environment. In order to return the business to top linegrowth, it was particularly important that we achieved this with our biggestcustomers in our main French market and specifically were able to work moreclosely with them on the active marketing of their private label household andpersonal care product ranges. Where we have been able to give this focus, thisapproach has already provided encouraging results with increased volumes and newbusiness wins. Generally we performed in line with or better than the overall private labelmarkets in our main territories. In France, personal care strongly outperformedthe market whilst in household products, after taking account of exiting lessprofitable contracts we broadly maintained share. In Spain, we delivered aparticularly strong performance whilst our Italian business also grew ahead ofthe market, excluding the benefit of the acquisition of Dasty Italia. We continued our focus on driving improved efficiency, reducing cost andbuilding capability in order to both mitigate the difficult market conditionsand position the business to benefit from an upturn in trading conditions.Initiatives included exiting less profitable contracts, improved labourproductivity, reducing waste levels, value engineering and alternative sourcingof certain raw materials and components. The headcount reductions achieved as part of the reorganisation last year weremaintained through the year and, combined with investments to increaseautomation and continuous improvement activities assisted by greater employeeengagement, drove a significant year on year improvement in labour productivity. Our capital investment programme was £9.2 million in the year (2006: £10.1m)with the key features being investment to improve efficiency and increaseinternal bottle blowing in order to reduce total production cost. Our two sitesin Ieper saw significant investment with the personal care facility investing inbottle blowing capability whilst the household products facility introducedadditional automation to reduce costs. Acquisitions During the year we made two important acquisitions: Henkel's European privatelabel household products business and Dasty Italia, for a combined cashconsideration of up to £37.2 million. These acquisitions transform our presence in our identified priority productcategories and targeted geographic markets as well as significantly progressingour plans to expand relationships with major participants in the growingdiscount retail format across Europe. They significantly increase our presencein Italy and Germany, which makes McBride's business more balanced acrossWestern Europe, and are expected to increase the revenues of our WesternContinental Europe business by around 35% in a full year. The acquisition from Henkel is based mainly on a major 45,000 tonne per annumautomatic dishwashing production facility in Luxembourg. The acquisition alsoprovides a platform in Germany, where McBride is keen to expand further, and astronger presence in a number of other markets in Central Europe. Dasty Italiais primarily a producer of specialist cleaners based at a large, modern andwell-invested factory that commenced production in 2003 and is near Bergamo,about 30 miles from McBride's existing Italian operation. Combined with ourexisting business, the acquisition creates the clear leader in Italian privatelabel household products. Financial review Total Western Continental Europe revenue was up 9% to £304.2 million (2006:£280.3m) primarily reflecting the effect of acquisitions. Currency exchange ratemovements adversely affected reported revenues by £3.5 million. Organic revenue,adjusting for acquisitions and disposals and currency exchange rate movements,was broadly flat in the year although slightly higher in the second half versusthe first half and the prior year second half. We delivered good organic revenuegrowth in personal care, Italian and Spanish household products and wereencouraged by stabilisation in French household products, our largest market, inthe second half of the year. Operating profit, before amortisation of intangible assets and exceptionalitems, was up 16% to £10.4 million (2006: £9.0m). The increased profitability inthe year reflects a strong second half driven by both improved performance inthe underlying business and the initial contribution of recent acquisitions.Improvements in the underlying business reflect the decisive management actionstaken in areas such as labour productivity outlined above. Eastern Continental Europe business review Markets The household and personal care markets are experiencing dynamic growth acrossEastern Continental Europe reflecting increasing disposable incomes, growingconsumer affluence and aspiration and intense focus from industry participants.Growth is particularly strong in Russia and certain other CIS states with, forexample, the Russian household and personal care products markets growing by 18%and 20% respectively in value terms in 2006 alone. In McBride's current coreEastern Continental Europe markets of Poland, the Czech Republic, Hungary andSlovakia, the combined household and personal care products markets increased invalue terms by 5% and 7% respectively in 2006. Private label market shares in these markets are also consistently increasingbut they remain at low levels compared to Western Europe, typically no more than5%, providing ample scope for future growth. This future growth should besupported by the fact that retail growth and consolidation is being led bydiscounters and international retail chains that are experienced in the use ofprivate label in their overall retail offer. (Source of market data: Euromonitor) Business performance Our Eastern Continental Europe business has developed well since we enteredthese markets a number of years ago. However, we are confident there is muchmore we can achieve in the region, making the business a more substantialbusiness in a Group context. Our confidence is founded on the strong growth inhousehold and personal care products being seen in the region, the rapidlyincreasing share of international retailers and the scope to drive the growth ofprivate label market share, capitalising on the significantly increasedresources we now have available in the business. In order to capitalise on these outstanding growth opportunities, wesignificantly increased investment across the business from undertaking a majornew product development programme, substantial enhancements in generalmanagement and market facing resources and capital investment across our fullproduction capability. We also purchased the minority interest in our Polishsubsidiary, simplifying the management of the business. The management team was strengthened by new Managing, Finance and SalesDirectors and we also placed greater sales and marketing resource in our maintarget markets. We continued the significant increase in investment to expand our Polishproduction facility to support continued growth in the Eastern ContinentalEurope region. Capital expenditure of £1.7 million (2006: £0.7m) was incurred.Major investment included adding further bottle blowing machines, mixing andfilling facilities, factory capacity as well as water treatment facilities. Thedivision also underwent significant systems investment to support the growingscale of the business. Acquisitions and minority interests We acquired Schneider, a Polish producer of private label household products,for £0.8 million in January 2007. The acquisition included a small productionfacility close to our existing site. In April 2007, we purchased the 15%minority interest in Intersilesia McBride Polska for £1.7 million. Financial review Total Eastern Continental Europe revenue rose 14% to £25.0 million (2006:£21.9m) with organic growth of 10% and the remainder attributable to theacquisition of Schneider. The revenue growth primarily reflects strong householdproduct sales in Poland. Operating profit, before amortisation of intangible assets and exceptionalitems, was £1.5 million (2006: £1.6m). Operating profit remained similar to theprior year's level despite strong revenue growth primarily due to the costs ofincreased new product development, marketing and management resources. Group financial review Revenue Group revenue increased 10% to £592.0 million (2006: £540.1m) with organicrevenue growth at constant exchange rates of 2% and personal care productsdelivering particularly strong growth of 9%. Other key factors benefiting theGroup's revenue performance were the acquisitions of Henkel's European privatelabel household products business and Dasty Italia and a full year contributionfrom the business acquired from Sanmex International. Currency exchange rate movements adversely impacted revenues by £3.5 million andlower local currency revenues were reported in the French and Benelux householdproducts markets. However, we saw stabilisation in our local currency revenuesin the second half in our key French household products market. By geographic origin, UK revenues grew 11% to £277.1 million (2006: £249.8m)with organic growth of 3% and the remainder due to full or part yearcontributions from acquisitions. Revenues in Western Continental Europeincreased 9% to £304.2 million (2006: £280.3m) primarily due to the Henkel andDasty Italia acquisitions. In Eastern Continental Europe, revenues were up 14%to £25.0 million (2006: £21.9m) which was predominantly organically driven. Operating profit Group operating profit, before amortisation of intangible assets and exceptionalitems ('adjusted operating profit'), increased 11% to £34.5 million (2006:£31.2m). This reflects improved profitability of the underlying business as wellas the contributions from our recent acquisitions. The adjusted operating profitmargin was the same as in the prior year at 5.8% with strong control ofadministrative costs offsetting higher cost of sales and distribution costs.Group reported operating profit increased 17% to £31.9 million (2006: £27.2m),the higher rate of increase relative to adjusted operating profit reflecting thelower level of exceptional items in the current year. Interest Reported net finance costs increased to £2.4 million (2006: £1.3m) primarilyreflecting increased interest expense arising from a higher debt level to fundthe acquisitions in the year. Exceptional items There was a £2.1 million pre-tax operating exceptional charge to the incomestatement in the year (2006: £3.8m). This related to integration costsassociated with the recent acquisitions. Profit before tax and tax charge Profit before tax for the year was up 14% to £29.5 million (2006: £25.9m) andbefore amortisation of intangible assets and exceptional items it was up 7% to£32.1 million (2006: £29.9m). The £8.2 million (2006: £7.5m) taxation charge forthe year represents a 28% effective tax rate (2006: 29%). Earnings per share and dividend Basic earnings per share (EPS) were up 16% to 11.9 pence (2006: 10.3p). BasicEPS, before amortisation of intangible assets and exceptional items, increased10% to 13.0 pence (2006: 11.8p). The weighted average number of shares in issuein the year used in calculating these EPS figures was 177,405,917 (2006:177,364,227). A final dividend of 3.9p per share, an increase of 11%, is recommended, giving afull year dividend of 5.6p, an overall increase of 10%. The final dividend, ifapproved by shareholders at the AGM on 30 October 2007, will be paid on 30November 2007 to shareholders on the register on 26 October 2007. Theex-dividend date will be 24 October 2007. The £9.9 million total dividendrelating to the year is covered 2.3 times (2006: 2.3 times) by earnings beforeamortisation of intangible assets and exceptional items. Cash flow The Group maintained its strong cash generative characteristics with net cashinflow from operations, excluding exceptional items, of £49.5 million (2006:£45.9m). This improvement was due primarily to the higher profitability achievedin the year with the net working capital outflow similar to the prior year. Capital expenditure increased 3% in the year to £20.0 million (2006: £19.5m)with investment supporting selective capacity increases, introduction of moremodern efficient production equipment as well as increased investment in theEastern Continental Europe business. The total capital expenditure figure forthe year included £1.0 million invested in the Dasty Italia and Chemoluxbusinesses between their acquisition dates and the year end. There was significant acquisition activity in the year with expenditure, net ofcash acquired, of £59.5 million on five acquisitions made in the year, deferredconsideration on a prior year acquisition and to purchase the minority interestin the Group's Polish subsidiary. Ordinary dividend payments were higher at £9.2million (2006: £8.7m) reflecting the increase in the dividend. Reflecting the Group's continued strong cash generative characteristics, afterthe £59.5 million acquisition net outflow and £4.1 million of acquired debt, theGroup's net debt only increased by £51.8 million to £80.9 million (2006:£29.1m). Balance sheet Net assets increased by £16.4 million in the year to £120.3 million (2006:£103.9m). The amounts of intangible assets, property, plant and equipment,working capital items and debt all increased significantly due primarily to theacquisitions completed in the year. Liabilities for pensions and other post-employment benefits declined from lastyear to £6.4 million, net of associated deferred tax asset (2006: £9.6m). Themajority of this liability, £5.2 million (2006: £8.6m), relates to the UKdefined benefit pension scheme. The pre-tax, before amortisation of intangible assets and exceptional items,return on average capital employed reduced from 24.3% to 22.1% with the positiveinfluence of increased profitability offset by the fact that, whilst providingreturns ahead of the Group's cost of capital, recent acquisitions contributedlower returns on capital than the existing Group average. Consolidated income statementfor the year ended 30 June 2007 Pre Exceptional Post Pre Exceptional Post exceptional items exceptional exceptional items exceptional items (note 4) items items (note 4) items 2007 2007 2007 2006 2006 2006 Note £m £m £m £m £m £m Revenue 3 592.0 - 592.0 540.1 - 540.1Cost of sales (393.0) - (393.0) (355.8) - (355.8)Gross profit 199.0 - 199.0 184.3 - 184.3 Distribution costs (39.7) - (39.7) (35.2) - (35.2)Administrative costs Before amortisation ofintangible assets (124.8) (2.1) (126.9) (117.9) (3.8) (121.7) Amortisation of intangible (0.5) - (0.5) (0.2) - (0.2)assetsAdministrative costs includingamortisation of intangibleassets (125.3) (2.1) (127.4) (118.1) (3.8) (121.9) Operating profit 3,4 34.0 (2.1) 31.9 31.0 (3.8) 27.2 Financial income 4.8 - 4.8 3.9 - 3.9Financial expenses (7.2) - (7.2) (5.2) - (5.2)Net financing costs (2.4) - (2.4) (1.3) - (1.3) Profit before tax 31.6 (2.1) 29.5 29.7 (3.8) 25.9 Taxation 7 (8.8) 0.6 (8.2) (8.7) 1.2 (7.5)Profit for the year 22.8 (1.5) 21.3 21.0 (2.6) 18.4 Attributable to:Equity holders of the parent 22.7 (1.5) 21.2 20.8 (2.6) 18.2Minority interest 0.1 - 0.1 0.2 - 0.2Profit for the year 22.8 (1.5) 21.3 21.0 (2.6) 18.4All activities relate to continuingoperations Earnings per ordinary share 6(pence)Basic 11.9 10.3Diluted 11.7 10.1 DividendsPaid in year (£m) 9.2 8.7Paid in year (pence per share) 5.2 4.9Proposed (£m) 6.9 6.2Proposed (pence per share) 3.9 3.5 Consolidated balance sheetat 30 June 2007 2007 2006 Note £m £mNon-current assetsIntangible assets 41.1 15.4Property, plant and equipment 164.3 130.6Other non-current assets 0.5 0.5Deferred tax 2.6 5.1 208.5 151.6 Current assetsInventories 59.7 41.3Trade and other receivables 130.7 106.6Cash and cash equivalents 6.6 1.3Assets classified as held for sale 1.3 - 198.3 149.2Total assets 3 406.8 300.8 Current liabilities Interest bearing loans and borrowings 9.9 5.2Trade and other payables 173.1 141.7Current tax payable 1.9 1.7Provisions 2.0 1.3 186.9 149.9 Non-current liabilitiesInterest bearing loans and borrowings 77.6 25.2Pensions and other post-employment benefits 8.9 13.7Provisions 1.6 1.0Deferred tax 11.5 7.1 99.6 47.0Total liabilities 3 286.5 196.9Net assets 120.3 103.9 EquityIssued share capital 17.8 17.7Share premium account 141.8 141.8Other reserves (0.2) (0.8)Retained earnings (39.1) (55.2)Total equity attributable to equity holders of the parent 120.3 103.5Minority interest - 0.4 Total equity and reserves 120.3 103.9 M W RobertsDirector Consolidated cash flow statementfor the year ended 30 June 2007 2007 2006 Note £m £m Profit before tax 29.5 25.9Net financing costs 2.4 1.3Pre-tax exceptional charge in the year 2.1 3.8Share based payments 0.2 -Profit on sale of property, plant and equipment (0.1) (0.3)Depreciation 17.2 17.8Amortisation of intangible assets 0.5 0.2Operating cash flow before changes in working 51.8 48.7capital(Increase)/decrease in receivables (3.8) 2.1(Increase)/decrease in inventories (7.1) 1.5Increase/(decrease) in payables 8.6 (6.4)Cash flow in respect of exceptional items (1.7) (5.5)Cash generated from operations 47.8 40.4Interest paid (3.3) (2.4)Taxation paid (6.3) (6.5)Net cash from operating activities 38.2 31.5 Cash flows from investing activities Proceeds from sale of land and buildings 0.1 2.2Acquisition of property, plant and equipment (19.8) (19.1)Acquisition of intangible assets (0.2) (0.4)Acquisition of businesses, net of cash acquired 5 (57.8) (7.3)Acquisition of minority interest 5 (1.7) -Interest received 1.3 0.3Net cash used in investing activities (78.1) (24.3) Cash flows from financing activities Proceeds from issue of share capital 0.7 0.6Repurchase of own shares - (3.3)Increase of borrowings 49.3 6.0Payment of finance lease liabilities (0.7) (0.4)Dividends paid (9.2) (8.7)Net cash generated/(used) in financing activities 40.1 (5.8) Net increase in cash and cash equivalents 0.2 1.4 Cash and cash equivalents at start of year (1.3) (2.7)Effect of exchange rate fluctuations on cash held 0.1 -Cash and cash equivalents at end of year (1.0) (1.3) Reconciliation of cash and cash equivalents per the balance sheet and cash flow statement Cash and cash equivalents per the balance sheet 6.6 1.3Overdrafts (7.6) (2.6)Cash and cash equivalents per the cash flow (1.0) (1.3)statement Reconciliation of net cash flow to movement in net debtfor the year ended 30 June 2007 2007 2006 £m £m Increase in cash and cash equivalents in the year 0.2 1.4Cash inflow from movement in debt (49.3) (6.0)Movement on finance leases 0.7 0.4Change in net debt resulting from cash flows (48.4) (4.2)Lease financing acquired with subsidiary (1.2) -Loans acquired with subsidiaries (2.9) -Translation differences 0.7 (0.5)Movement in net debt in the year (51.8) (4.7)Net debt at the beginning of the year (29.1) (24.4)Net debt at the end of the year (80.9) (29.1) Consolidated statement of recognised income and expensefor the year ended 30 June 2007 2007 2006 £m £m Foreign exchange translation differences (1.1) 0.7Net gain/(loss) on hedge of net investment in foreign 0.8 (0.7)subsidiariesCash flow hedge reserve movement (0.3) 0.4Tax on items taken directly to equity 0.1 (0.1)Actuarial gain/(loss) net of deferred tax 3.1 (0.6)Income and expense recognised directly in equity 2.6 (0.3)Profit for the year 21.3 18.4Total recognised income and expense for the year 23.9 18.1 Attributable to:Equity shareholders of the parent 23.8 17.9Minority interest 0.1 0.2 23.9 18.1 Total recognised income and expense for the year 23.9 18.1Adjustments relating to the implementation of IAS 32 and IAS 39 from 1 July - (1.5)2005 23.9 16.6 NOTES TO THE FINANCIAL STATEMENTS 1) Exchange ratesThe exchange rates against sterling used for the periods were as follows: 2007 2006 2007 2006 Average rate Closing rateEuro 1.48 1.46 1.49 1.45Polish Zloty 5.74 5.74 5.59 5.90Czech Koruna 41.8 42.4 42.7 41.3Hungarian Forint 384.2 372.1 365.0 409.7 2) Basis of preparation This financial information has been prepared in accordance with IFRS adopted foruse 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 recognitionand measurement requirements of adopted IFRSs as at 30 June 2007. 3) Segment information Segment information is presented below in respect of the Group's geographic andbusiness segments. The primary format, geographic segments, is based on theGroup's operating divisions and internal reporting structure. Transfer pricesbetween segments are set on an arm's length basis. Segment revenue and profitinclude transfers between segments, which are eliminated in consolidation. Geographic segments United Kingdom Western Eastern Elimination Total Continental Continental Europe Europe 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £m External revenue 274.5 247.3 292.8 271.0 24.7 21.8 - - 592.0 540.1Inter segment revenue 2.6 2.5 11.4 9.3 0.3 0.1 (14.3) (11.9) - -Total segment revenue 277.1 249.8 304.2 280.3 25.0 21.9 (14.3) (11.9) 592.0 540.1Segment profit pre 24.5 22.0 10.4 9.0 1.5 1.6 (0.1) - 36.3 32.6amortisation ofintangible assetsAmortisation of (0.2) (0.2) (0.2) - (0.1) - - - (0.5) (0.2)intangible assetsSegment profit 24.3 21.8 10.2 9.0 1.4 1.6 (0.1) - 35.8 32.4Corporate costs* (1.8) (1.4)Exceptional items (2.1) (3.8) (see note 4)Operating profit 31.9 27.2Net finance costs (2.4) (1.3)Taxation (8.2) (7.5)Profit for the year 21.3 18.4 *Corporate costs relate primarily to head office costs that are not allocated toone of the geographic segments United Kingdom Western Eastern Corporate* Total Continental Continental Europe Europe 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £m Segment assets 155.4 119.1 231.9 163.2 15.8 12.1 3.7 6.4 406.8 300.8Segment liabilities (74.8) (70.1) (110.9) (85.0) (5.0) (4.0) (95.8) (37.8) (286.5) (196.9)Capital expenditure* 9.1 8.7 9.2 10.1 1.7 0.7 - - 20.0 19.5Amortisation and 7.7 9.0 9.5 8.4 0.5 0.5 - 0.1 17.7 18.0depreciation *Corporate liabilities include external debt and tax liabilities. Capitalexpenditure includes property, plant and equipment and intangible assets 3) Segment information (continued) Business segments Household Personal Care Total 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Segment revenue 476.9 434.9 115.1 105.2 592.0 540.1Segment profit pre amortisation of intangible assets 26.9 23.3 9.4 9.3 36.3 32.6Amortisation of intangible assets (0.4) (0.1) (0.1) (0.1) (0.5) (0.2)Segment profit 26.5 23.2 9.3 9.2 35.8 32.4Corporate* (1.8) (1.4)Exceptional items (see note 4) (2.1) (3.8)Operating profit 31.9 27.2*Corporate costs relate primarily to head office costs that are not allocated to one of the businesssegments Household Personal Care Corporate Total 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £mSegment assets 327.2 229.7 75.9 64.7 3.7 6.4 406.8 300.8Capital expenditure* 12.9 14.5 7.1 5.0 - - 20.0 19.5*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 bydestination. United Kingdom Western Eastern Total Continental Continental Europe Europe and Rest of World 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £mExternal revenue by destination 261.0 233.7 282.6 263.9 48.4 42.5 592.0 540.1 4) Exceptional items The Group presents certain items as 'exceptional'. These are items which, inmanagement's judgement, need to be disclosed by virtue of their size orincidence in order to obtain a proper understanding of the financialinformation. There was a £2.1 million pre-tax operating exceptional charge to the incomestatement in the year relating to the incremental costs of integrating therecently acquired businesses detailed in note 5 and Sanmex Internationalacquired in 2006. This includes disruption costs, asset write offs andconsultant costs. The £3.8 million 2006 pre-tax operating exceptional chargeincluded rationalisation of Western Continental Europe's administration costs,£2.5 million, restructuring the UK, £0.5 million and a termination payment andrelated costs for the previous Chief Executive, £0.8 million. In terms of segment analysis in note 3, the exceptional charge relates to the UK£0.8 million (2006: £0.5m), Western Continental Europe £0.8 million (2006:£2.5m) and Corporate £0.5 million (2006: £0.8m), on a geographic basis, andHousehold £1.6 million (2006: £2.9m), Personal Care nil (2006: £0.1m) andCorporate £0.5 million (2006: £0.8m) on a business basis. 5) Acquisitions Dasty Italia S.p.A. On 28 February 2007, the Group acquired all of the shares of Dasty ItaliaS.p.A., a manufacturer of private label household cleaning liquids in Italy fora total consideration of £15.9 million. Henkel's European private label household products businesses On 13 April 2007, the Group acquired all of the shares of Chemolux S.a.r.l., amanufacturer of automatic dishwashing products in both private label and brandedformats in Luxembourg for a total initial consideration of £22.8 million. Thepotential consideration for the Chemolux acquisition includes a further £4.7million contingent on achieving certain operating and financial criteria. At thebalance sheet date, it was not probable that any of the criteria would be metand therefore, this has not been considered in the amount of initialconsideration referred to above. If the situation changes and there isadditional consideration, it will be treated as an adjustment to the cost of theacquisition. On 13 April 2007, the Group also acquired as part of the same negotiation thebusiness and assets of Henkel's UK private label household products business fora total consideration of £13.7 million. 5) Acquisitions (continued) Other acquisitions On 12 September 2006 the Group completed the purchase of the business and assetsof Coventry Chemicals Limited, a privately owned UK company for a totalconsideration of £2.3 million. On 2 January 2007 the Group acquired the business and assets of Zaklad ChemicznySchneider SJ, a privately owned company in Poland, for a total consideration of£0.8 million. On 27 April 2007 the Group purchased from the Administrator of Darcy IndustriesLimited the business and assets of this UK company for a total consideration of£4.7 million. In aggregate, these acquired businesses contributed £36.8 million revenue,including £21.6 million from the former Henkel businesses and £9.3 million fromDasty Italia S.p.A., and £2.0 million operating profit for the periods betweentheir respective acquisition dates and 30 June 2007. If these acquisitions had been completed on the first day of the financial year,they would have contributed approximately £136 million of revenue to the Group.It would be impractical to disclose the operating profit impact as this wouldrequire an evaluation of synergistic benefits and because a significant elementof the acquisitions have been incorporated into existing facilities. The acquisitions had the following effect on the Group's assets and liabilitieson acquisition date: Dasty Italia S.p.A. Henkel Other acquisitions Total European private label businesses Book Fair value Book Fair value Book Fair value Book Fair value Fair adjustments value value adjustments value value value adjustments adjustments £m £m £m £m £m £m £m £m £mNet assetsacquired:Property, plant and 9.6 4.9 17.9 (0.1) 2.4 (0.3) 29.9 4.5 34.4equipmentIntangible assets - 0.4 - 6.0 0.1 0.1 0.1 6.5 6.6Working capital 2.6 - 8.3 (1.8) 2.2 (0.8) 13.1 (2.6) 10.5Cash and cash 0.7 - 1.6 - - - 2.3 - 2.3equivalentsNet debt and (4.1) - - - - - (4.1) - (4.1)finance leasesNon-current (1.7) (1.8) (1.9) (1.0) - (1.0) (3.6) (3.8) (7.4)liabilities 7.1 3.5 25.9 3.1 4.7 (2.0) 37.7 4.6 42.3 Fair value of 10.6 29.0 2.7 42.3assets acquiredGoodwill on 5.3 7.5 5.2 18.0acquisitionTotal consideration 15.9 36.5 7.9 60.3 Satisfied by:Cash 15.4 34.7 7.6 57.7Costs associated 0.5 1.8 0.3 2.6with theacquisition 15.9 36.5 7.9 60.3 The goodwill arising on the acquisitions is mainly attributable to operatingsynergies obtained by including acquired production in existing plants.Intangible assets mostly relate to the fair value placed on customerrelationships along with a small amount attributable to brands. The fair values of the Henkel identifiable assets and liabilities have beenprepared on a provisional basis as a result of the proximity of the acquisitiondate to the year end. The value of assets and liabilities recognised on acquisition are theirestimated fair values. The Group has stated in its accounting policies the basisof valuing intangible assets acquired on acquisitions. The £57.8 million cash outflow in the cash flow statement relating to theacquired businesses net of cash acquired represents £60.3 million 2007acquisition costs plus £0.3 million of final 2006 acquisition costs less £0.5million of 2007 acquisition costs unpaid at 30 June 2007 less £2.3 million ofcash acquired. 5) Acquisitions (continued) Acquisition of minority interest In April 2007, the Group acquired the remaining 15 percent interest inIntersilesia McBride Polska Sp. Z.o.o. for £1.7 million, increasing itsownership from 85 percent to 100 percent. 6) Earnings per share Basic earnings per ordinary share is calculated on profit after tax and minorityinterest, attributable to equity holders of the parent, divided by the weightedaverage number of ordinary shares in issue during the year in accordance withIAS 33. 2007 2006Total earnings (£m) a 21.2 18.2Weighted average number of ordinary shares b 177,405,917 177,364,227Basic earnings per share (pence) a/b 11.9 10.3 Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on assumption of conversion of all dilutiveordinary shares. The Company has three categories of potentially dilutive ordinary shares: shareoptions issued whose exercise price is less than the average price of theCompany's ordinary shares during the year, share awards with no option price andshares allocated to an approved Save As You Earn scheme. 2007 2006Weighted average number of ordinary shares (million) b 177.4 177.4Effect of dilutive share options (million) 0.3 0.9Effect of dilutive share awards (million) 0.8 0.2Effect of dilutive SAYE scheme shares (million) 2.7 2.5 c 181.2 181.0Diluted basic earnings per share (pence) a/c 11.7 10.1 Adjusted basic earnings per share applies to earnings excluding exceptionalitems and amortisation of intangible assets since the directors consider thatthis gives additional information as to the underlying performance of the Group. Restated 2007 2006 £m £mEarnings used to calculate basic and diluted EPS a 21.2 18.2Exceptional items after tax 1.5 2.6Amortisation of intangible assets after tax 0.4 0.2Earnings before exceptional items and amortisation of intangible d 23.1 21.0assetsAdjusted basic earnings per share (pence) d/b 13.0 11.8Adjusted diluted earnings per share (pence) d/c 12.7 11.6 The 2006 restatement relates to the adjustment to earnings for amortisation ofintangible assets not previously included. 7) Taxation The £8.2 million tax charge for the year ended 30 June 2007 (2006: £7.5m)consists of £5.4 million (2006: £4.8m) of UK tax and £2.8 million (2006: £2.7m)of overseas tax. 8) Other notes i) The financial information set out above does not constitute thecompany's statutory accounts for the years ended 30 June 2007 or 2006. Statutoryaccounts for 2006, which were prepared under IFRS, as adopted by the EU, havebeen delivered to the Register of Companies. The auditors have reported on thoseaccounts. The annual financial information presented in this the preliminaryannouncement for the year ended 30 June 2007 is based on, and is consistentwith, that in the Group's audited financial statements for the year ended 30June 2007, and the financial statements will be sent to shareholders in duecourse. The auditors report on the financial statements is unqualified and doesnot contain any statement under section 237(2) or (3) of the Companies Act 1985. ii) The Annual Report for 2007 will be issued to shareholders on 29September 2007 and will be available from the Company secretary at the Company'sRegistered Office, McBride House, Penn Road, Beaconsfield, Buckinghamshire, HP92FY; the Annual General Meeting will be held on Tuesday 30 October 2007. iii) If approved at the Annual General Meeting on 30 October 2007, a finaldividend of 3.9 pence per share will be paid on 30 November 2007 to shareholderson the register at 26 October 2007. The ex-dividend date will be 24 October2007. 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