LONDON (ShareCast) - (Sharecast News) - McBride reported a 67% fall in annual operating profits but the household products maker said it had made "excellent progress" in strategic changes as it battles cost pressures.
Revenues of £689.8m for the year to 30 June were up 9.0%, boosted by nine months' contribution from the acquisition of Danlind. The company, which mainly makes household and personal care products for sale under retailers' own brands, had a much stronger second half, with underlying revenues up 2.9% after falling 4.3% in the first.

Total operating profits collapsed to £13.1m from £39.8m and adjusted pre-tax profits were down 8% to £31.7m, which was in-line with market expectations. Profits were hit by weak underlying demand, higher costs for raw materials and transportation.

Raw material prices eased in the second half but still increased roughly 2.2% over the year, with 0.4% of this driven by foreign exchange, mostly from the weak pound. Rapid volume growth in the second half, especially in Germany, led to a distribution cost increase of 6.7% or £2.9m for the full year.

After disposing of its skincare business in the Czech Republic and in July agreeing terms for the sale of its European Personal Care Liquids business, if these businesses are excluded, pre-tax profits from continuing operations were down 5% to £33.2m, with operating margins down 1.8bps to 4.6%. Adjusted diluted earnings per share were down 4.5% to 12.7p.

Chief executive Rik De Vos, who has overseen two profit warnings this year to send the share price down well over 40%, said the performance was "slightly behind our early expectations" but that McBride had outperformed the sector "both financially and operationally in what has been a particularly challenging environment", with the exit from a major part of the PCA business in Europe allows us to focus fully on our core activities in European Household.

In the face of strong input cost inflation, he said the current year would see a continued focus on profitably growing volumes growth and passing on more of the burden of price pressures to its customers . "We will also maintain close control of overheads whilst investing in key focus areas that will enable McBride to fully exploit its scale and cost advantage within its supply chain."

Revenues in the first few months of the new financial year have been "satisfactory" and whilst certain cost pressures persist, management said at this stage they remain confident of achieving full year targets.

Broker Peel Hunt said "the market continues to be tough and cost pressures persist (particularly in transport), but McBride is taking share from struggling competitors". Peel Hunt has forecast £36m PBT for 2019 versus a consensus forecast of £37.5m.

With the transformation of the loss-making PCA Europe business finalised, Liberum said McBride is now a more focused, specialized and profitable business", with adjusted operating margin of 5.5% for continuing operations versus 4.8% for total operations.

"However, issues remain near term as higher input costs, higher distribution costs, and inefficiencies in the ramp-up of new business wins are likely to persist, while passing through price increases remains as challenging as ever," Liberum analysts wrote. "Savings from efficiency projects, Danlind acquisition synergies and further savings from the transformation of PCA Europe are likely to be 2H'19 weighted. Focus in FY'19 remains on the profitable delivery of anticipated volume growth while mitigating the cost pressures."

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