Final Results

McBride PLC 19 September 2002 19 September 2002 McBride plc Preliminary Announcement for the Year Ended 30 June 2002 McBride supplies over 20 million Private Label household and personal care products each week to all of Europe's leading retailers. Highlights of the full year results are as follows: • Group turnover was £484.0 million, up £12.7 million (3%), for the continuing business. • Group operating profit was £24.8 million, up £5.1 million (26%), for the continuing business. • Operating margin improved to 5.1% compared with 4.2% last year, for the continuing business. • Pre tax profit, before exceptional items, £18.0 million, up £9.6 million (114%) from last year. • Settlement reached with our joint venture partners in Aerosol Products Limited ('APL') generating an exceptional £15.8 million goodwill write-off. All APL debt eliminated and APL breaking even. • Net debt of £94.9 million (2001: £93.2 million) includes the £16.0 million payment made in settlement of the joint venture. Strong underlying cash generation was £21.6 million (2001: £5.3 million) before dividend payments and the year end exchange adjustment. • New 5-year bank facility secured at competitive rates. • Final proposed dividend of 1.4p, total dividend for the year 2.1p up 5% from last year (2001: 2.0p) Mike Handley, Chief Executive, commented: 'These trading results confirm McBride's underlying strength. Although competitive pricing pressure remains strong, the first months of the new financial year have maintained the Group's rate of improvement with sales and margins ahead of last year and debt continuing to fall.' For further information please contact: McBride plc Mike Handley, Chief Executive 020 7831 3113 (on 19 September 2002) Miles Roberts, Finance Director 01494 60 70 50 Financial Dynamics 020 7831 3113 Andrew Dowler, Fiona Meiklejohn Overview • Sales in Continental Europe continue to grow strongly, up 10% to £251.3 million. Profits improved 53% to £9.8 million. • Sales in the UK fell 4% to £228.5 million, as the continuing weakness of the Euro encouraged European suppliers to target the UK market, particularly in the laundry sector. However, tight cost control saw profits rise 13%. • Better working capital management and reduced capital expenditure levels have resulted in a significant improvement to operating cashflow. Cashflow, before exceptional items and exchange movements was £21.6 million, compared to last year at £5.3 million. Strategy McBride's strategy is to serve the major European grocery retailers with Private Label household and personal care products across Europe. The Board is committed to this strategy which continues to serve us well. Key Strengths Amongst our many strengths, one aspect of our competitive edge that stands out is innovation. We demonstrate this in all facets of our business: product, packaging, manufacturing, logistics, marketing and information systems. This sets us apart from our competitors and is well recognised by our customers. Strengthening of the Board of Directors Two new Directors were appointed during the year. As previously reported, Miles Roberts joined on 2 January 2002 as Group Finance Director from Costain Group Plc, replacing Terry Monks who left in September 2001. Colin Smith joined as a non-executive Director on 4 April 2002 following the retirement of Alan Washkowitz at the December 2001 Annual General Meeting. The Board expects to appoint a further non-executive Director in the near future. Group Refinancing Since the year-end, the Group has successfully completed two separate borrowing agreements providing a total capacity of £110 million. These will replace the existing 5-year facility of £125 million, which is due to expire in April 2003. These facilities provide a solid base for the Group to consolidate its financial position. Current Trading and Prospects The Group's trading performance in terms of sales, profits and cash for the first eleven weeks of the new financial year have been in line with expectations and ahead of the same period last year. The results presented demonstrate a strong improvement by our core household and personal care businesses. This has continued into the start of the current year with sales, profits and cash generation ahead of the comparable period last year. In the past few years we have spent considerable levels of capital expenditure on three major schemes. These are now complete and the current level of £10.5m is indicative of our ongoing level of expenditure. Chief Executive's Review It is pleasing to report that the Group's results have responded to the series of management actions that were planned in early 2001 and executed in a phased programme that is still in progress. The ability and experience of our management team and the inherent strengths of the business have enabled the Group to maintain our market leadership. This has been achieved by the combination of sales volume growth, price increases, cost controls, profit growth and improved cash generation. While total reported sales of £484.0m were marginally lower than the previous year, the ongoing household and personal care sales grew by 2.7%, excluding Wrafton Laboratories which was sold last year. Our long term strategic objective to grow in Continental Europe has been successful and for the first time our overseas businesses represented more than half the Group's turnover. Since 1993 the reported proportion of sales in Continental Europe has grown from 44% to 53% and this is after the significant devaluation of the Euro and its heritage currencies. At 1993 rates of exchange the proportion of sales outside the UK would have been 58% which is the better measure of our strategic development. Group Operating Profit of £26.1m for the ongoing business before goodwill amortisation and the impact of the joint venture increased by 25.5%. These results reflect a very strong improvement in our Continental European profits together with strong growth in Poland and a good UK result. Last year I mentioned that we had refocused our management structure into geographical businesses and strengthened the links between the commercial and supply chain functions and this improved our customer service. Another benefit of this change has been the demonstrable improvement in the control of working capital, in particular stocks, resulting in very strong cash generation. The broad recovery of our core business has enabled the Group to deal effectively with the APL situation in both operational and financial terms with only a small increase in the Group's debt. United Kingdom The Private Label grocery market in the UK is mature with some of the most sophisticated retailers in the world managing successful Private Label ranges.The market continues to be very competitive as the large retailers compete on all aspects of their customer offer. Last year Private Label stemmed small share decline of the previous two years during which brand manufacturers were investing heavily in pricing and promotional activity. Whilst all commodity Private Label is well developed, the household and personal care Private Label sectors are still relatively underdeveloped. This remains a significant opportunity for our customers and ourselves to grow Private Label share to our mutual benefit. It is therefore encouraging that all Private Label household products held a combined share of 23.5% helped by some significant category advances for example, in Laundry Liquid sachets +12%, Auto Dish washing +5%, Washing Up Liquid and Laundry tablets +3%. Our business in the UK has leading shares in all these categories. In personal care our activities are focused on hair care, bath and shower products and oral care. During 2000 and 2001 the UK grocery retailers focused their attention on attacking the market leading position of Boots The Chemist in toiletry products through aggressive promotional and price support for branded products shifting their focus away from Private Labels. During last year this has corrected itself and Private Label sales are now stable. It is against this market background that our sales in the UK of £228.5m declined by 4%. The weak Euro and the impact of internet auctions were the main cause of this decline. We reported last year our successful launch of the first liquid laundry sachets and the sales growth of these has been encouraging. Another first for the Group was the successful launch of peroxide bleach in Private Label. The UK personal care business continued the improvements in its operational performance from last year gaining a number of new retailer brand contracts, resulting in the Bradford factory having its best performance for a number of years. APL The UK aerosol Joint Venture has been well documented. The new management team have significantly restructured the cost base of APL and improved its operating performance. It is early days but the new confidence within the business and in many of our customers has enabled APL to record a modest profit in the first eleven weeks of the year. Continental Europe Our Continental Europe business (McBride CE) sells in all member states of the Community in mainland Europe, with its head office located in Belgium and production sites in 5 member states. Retailer consolidation led by the French multiples and some German and Dutch retailers is creating the right environment for Private Label to grow. The Group has always based its strategy on this expectation but the recent scale of mergers, acquisitions and store openings has meant that our customers have had other priorities which have now been largely resolved. Thus we are seeing Private Label continue to grow in these markets. The Continental European household market saw demand for quality Private Label household and laundry products grow by 10% and 7% respectively. The share held by Private Label increased in Spain by 2%, in France and The Netherlands by 0.5% and in Germany by 1% In this growing market our reported sales of £251.3m were up nearly 10%. In France, our second largest market after the UK, we achieved an impressive 8% growth reflecting the focus of our major customers on the development of higher quality Private Label ranges. Our businesses in Spain, Italy and The Netherlands also benefited from these developments. International McBride International has responsibility for all markets outside the EU with the majority of its sales in Central & Eastern Europe, the core of which is Intersilesia in Poland which was acquired in 1998. The business represented about 7% of the Group's turnover and comprises exports from both the UK and CE combined with Intersilesia's own sales. The combined business grew its turnover last year by an impressive 21%. In Poland, Intersilesia achieved 11% growth in local currency and has now more than doubled its turnover since acquisition. In Hungary, the Czech Republic and Slovakia, the market is also being led by the rapid development of Western European retailers through a combination of store building programmes and acquisitions. Our strategy is to selectively support our leading customers as they expand outside their domestic markets. Financial Review Significant focus has been placed, not only on improving profitability, but also cash generation. This is to reduce the level of debt to achieve a more optimum capital structure as well as improve return on capital. Overall, the Group made a small pre-tax profit of £2.2m (2001: £11.3m). However, this was after an exceptional £15.8m goodwill write-off related to our joint venture. During the year the underlying trading performance and cashflows on the continuing business improved strongly from those in the previous year. Lower operating costs from improving efficiency combined to lift margins, before goodwill amortisation, from 4.4% last year to 5.4% this year. Turnover in Europe, grew 9.8% partly due to increased prices but also stronger volumes as Private Label penetration continues to grow. Underlying cash generation also improved substantially due to tight control of capital expenditure and working capital. Group operating profit of £24.8m on the continuing business, was up 26%, on last year. Operating profit before goodwill amortisation and depreciation (EBITDA) similarly improved to £44.7m. This EBITDA represents a multiple of just 2.1x against this year's Net Debt of £94.9m. The operating improvements were accompanied by a reduction in capital employed thereby improving the return on capital. During the year the restructured purchasing function was able to mitigate the effects of the raw material cost cycle and we expect this to continue during the coming year. During the second half of the year the Group renewed its insurance cover for the coming year. Given the volatile state of the insurance market, the Group was pleased to achieve only a minimal increase in the cost of the policy with no material increase in risk. Net interest for the Group was £4.4m for the full year, down substantially from last year following the reduction in debt flowing from last year's disposal of Wrafton Laboratories and strong cash generation during the year. Interest cover for the full year improved to 5.7x (2.9x last year). The taxation charge for the year of £5.6m is based on FRS19 that requires a full provision to be made for any deferred tax liability. This is a mandatory change in accounting policy and, as such, has required a Prior Year Adjustment to both the Balance Sheet and comparative Profit and Loss account. The charge for the year equates to an effective rate of 26% on Group profit before tax and goodwill. This charge benefits from the utilisation of ACT of which £6.7m remains available to relieve against future profits. A thorough review of the Group's tax position has recently been undertaken. Changes are being made to the internal ownership and funding structure of the Group that we anticipate will result in significant savings in taxation. Capital expenditure during the year amounted £10.5m (£14.2m last year). Expenditure has been incurred on the roll out of new operational and financial systems, warehousing and production capacity. Net Debt increased from the June 2001 level by £1.7m to £94.9m. However this adverse movement included a £16m payment in June 2002 in relation to APL and £4.4m of adverse exchange movements due to the relative strength of the Euro at the end of June. The underlying cashflow generation was £18.0m after including the £3.6m dividend payment made in January 2002. This improvement followed the completion of major capital expenditure projects and tight control of working capital combined with improved profitability. Further improvements, in working capital have been targeted. Earnings and Dividends Earnings per share, before goodwill amortisation and our share of the Joint Venture, is 8.9p, an increase of 3.5% over last year's restated 8.6p. The final year dividend, payable on 3 January 2003, has been declared at 1.4p. This together with the interim dividend brings the full year to 2.1p, an increase of 5% over last year's 2.0p. Pension Accounting - FRS17 During the year, due to rising costs and uncertainty surrounding investment returns, the UK business closed its defined benefit scheme to new employees; it has been replaced by a defined contribution scheme. The defined benefit scheme has 650 active members, 58 pensioners and 378 deferred members. Pension provision for our overseas colleagues is generally provided by their respective governments out of general taxation. As such, the Group has no residual forward exposure. In the year under review, the Board has complied with the interim provisions of FRS17 and the scheme's gross assets amounted to £35.6m and the liabilities to £42.3m leaving a shortfall of £4.7m after taxation. This shortfall will be made up over the remaining service lives of its members and does not represent a material risk to the Group. CONSOLIDATED PROFIT AND LOSS ACCOUNT Restated Restated Restated Total Continuing Discontinued Total Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June 2002 2001 2001 2001 £m £m £m £m Turnover Continuing operations and share of joint venture 500.6 490.3 26.3 516.6 Less: share of joint venture's turnover (16.6) (19.0) - (19.0) Total Group Turnover 484.0 471.3 26.3 497.6 Cost of sales (297.6) (302.2) (14.9) (317.1) Gross Profit 186.4 169.1 11.4 180.5 Distribution costs (26.2) (24.6) (0.3) (24.9) Administrative costs Before goodwill amortisation (134.1) (123.7) (8.0) (131.7) Goodwill amortisation (1.3) (1.1) (0.9) (2.0) Administrative costs including goodwill amortisation (135.4) (124.8) (8.9) (133.7) Group operating profit 24.8 19.7 2.2 21.9 Share of joint venture's operating loss before goodwill amortisation (1.2) (2.5) Goodwill amortisation in joint venture (0.3) (0.4) Goodwill impairment in joint venture - (2.1) Share of joint venture's operating loss (1.5) (5.0) Profit on disposal of discontinued operations - 2.9 Write-off of Goodwill in Joint Venture (15.8) - Profit on ordinary activities before interest 7.5 19.8 Group interest receivable and similar income 0.6 0.8 Group interest payable and similar charges (5.0) (8.3) Share of joint venture's interest payable and similar charges (0.9) (1.0) Profit on ordinary activities before taxation 2.2 11.3 Group tax on profit on ordinary activities (5.6) (0.6) Share of joint venture's tax credit on ordinary 0.2 1.3 activities Profit/(loss) on ordinary activities after taxation (3.2) 12.0 Equity minority interest (0.2) (0.5) Profit/(loss) for the period (3.4) 11.5 Dividends proposed (3.7) (3.6) Retained profit/(loss) for the period (7.1) 7.9 Earnings per ordinary share (pence), including prior year adjustment for FRS 19 - Deferred tax * Basic and diluted (1.9) 6.5 * Basic before exceptional items, share of joint 8.9 8.6 venture and goodwill amortisation Dividend per share (pence) 2.1 2.0 BALANCE SHEET Restated Group Group Company Company As at As at As at As at 30 June 30 June 30 June 30 June 2002 2001 2002 2001 £m £m £m £m Fixed Assets Intangible assets 10.4 11.7 - - Tangible assets 135.4 139.3 0.2 0.2 Investments 0.0 5.0 155.0 155.0 Total fixed assets 145.8 156.0 155.2 155.2 Current Assets Stocks 46.9 48.6 - - Debtors 110.8 98.1 50.6 71.3 Cash at bank and in hand 1.2 2.7 - - 158.9 149.4 50.6 71.3 Creditors: amounts falling due within one year (232.0) (134.4) (41.4) (9.5) Net current assets (73.1) 15.0 9.2 61.8 Total assets less current liabilities 72.7 171.0 164.4 217.0 Creditors: amounts falling due after more than one year (2.4) (90.4) - (48.9) Provisions for liabilities and charges (3.9) (1.9) - - Investment in joint venture Share of gross assets 4.3 7.7 - - Share of gross liabilities (6.1) (15.0) - - Net Investment in joint venture (1.8) (7.3) - - Net assets 64.6 71.4 164.4 168.1 Capital and reserves Called up share capital 17.8 17.8 17.8 17.8 Share premium account 139.3 139.3 139.3 139.3 Profit and loss account (92.7) (86.1) 7.3 11.0 Equity shareholders' funds 64.4 71.0 164.4 168.1 Equity minority interest 0.2 0.4 - - Net assets 64.6 71.4 164.4 168.1 CONSOLIDATED CASH FLOW STATEMENT Year Year Year Year ended ended ended ended 30 June 30 June 30 June 30 June 2002 2002 2001 2001 £m £m £m £m Net cash flow from operating activities 42.3 33.5 Return on investments and servicing of finance (4.8) (7.9) Taxation (5.4) (6.1) Operating cash flow after taxation and finance costs 32.1 19.5 Capital expenditure (10.6) (14.9) Cash expenditure on fixed assets 0.1 0.7 Disposal of fixed assets (10.5) (14.2) Acquisitions and disposals Cost of refinancing the joint venture (16.3) (4.8) Proceeds from sale of subsidiary undertakings - 25.7 Deferred consideration payments 1.0 (4.4) (15.3) 16.5 Equity dividends paid (3.6) (3.6) Cash flow before financing 2.7 18.2 Financing (9.9) (22.8) Decrease in cash in the year (7.2) (4.6) Decrease in cash in the year (7.2) (4.6) Cash inflow from movement in debt 9.4 21.9 Movement on finance leases 0.5 0.9 Change in net debt resulting from cash flows 2.7 18.2 Net debt disposed with subsidiaries - 0.6 Translation differences (4.4) 3.0 Movement in net debt in the year (1.7) 21.8 Net debt at the beginning of the year (93.2) (115.0) Net debt at the end of the year (94.9) (93.2) CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year Year Ended ended 30 June 30 June 2002 2001 £m £m Profit/(loss) for the financial year (3.4) 8.0 Unrealised foreign currency differences 0.5 (0.2) Total recognised gains and losses relating to the financial year (2.9) 7.8 Prior year adjustment in respect of the adoption of FRS 19 - (5.0) - Deferred tax Total recognised gains and losses since last financial statements (7.9) 7.8 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Restated Year Year ended ended 30 June 30 June 2002 2001 £m £m Opening Shareholders' funds as previously reported 72.5 68.3 Prior year adjustment - FRS 19 Deferred tax (1.5) (1.5) Restated opening balances 71.0 66.8 Profit/(loss) for the financial year (3.4) 8.0 Equity dividends (3.7) (3.6) Unrealised foreign currency differences 0.5 (0.2) Closing shareholders' funds 64.4 71.0 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW Restated Year Year ended ended 30 June 30 June 2002 2001 £m £m Operating profit 24.8 21.9 Depreciation 18.6 18.0 Goodwill amortisation 1.3 2.0 Loss on disposal of fixed assets 0.1 0.4 Movement in stock 3.3 5.9 Movement in debtors (9.6) 0.6 Movement in creditors 3.8 (15.3) 42.3 33.5 1) SEGMENTAL INFORMATION Year Year ended ended 30 June 30 June 2002 2001 £m £m Turnover by destination is analysed by geographical area as follows: Continuing operations UK 228.5 238.3 Continental Europe 251.3 228.9 Rest of World 4.2 4.1 Continuing Group turnover 484.0 471.3 Share of joint venture's turnover 16.6 19.0 Turnover: Group and share of joint venture 500.6 490.3 Discontinued operations UK 26.3 Turnover by destination 500.6 516.6 Turnover by geographical origin is analysed as follows: Continuing operations UK 243.1 243.4 Continental Europe 240.9 227.9 Continuing Group turnover 484.0 471.3 Share of joint venture's turnover 16.6 19.0 Turnover: Group and share of joint venture 500.6 490.3 Discontinued operations UK 26.3 Turnover by origin 500.6 516.6 Turnover by class of business is analysed as follows: Continuing operations Household products 415.2 404.5 Personal care products 68.8 66.8 Continuing Group turnover 484.0 471.3 Share of joint venture's turnover 16.6 19.0 500.6 490.3 Discontinued operations Pharmaceuticals 26.3 Total turnover by class of business 500.6 516.6 Operating profit by geographical origin is analysed as follows: Continuing operations UK 15.0 13.3 Continental Europe 9.8 6.4 Operating profit 24.8 19.7 Discontinued operations UK 2.2 Group Operating Profit 24.8 21.9 Non operating Items (18.2) (3.1) Net interest payable (4.4) (7.5) Profit on ordinary activities before tax 2.2 11.3 The UK business includes total goodwill amortisation of £1.1 million The Continental Europe business includes goodwill amortisation of £0.2 million Operating profit by class of business is analysed as follows: Continuing operations Household products 21.1 17.5 Personal care products 3.7 2.2 Operating Profit 24.8 19.7 Discontinued operations Pharmaceuticals 2.2 Group Operating Profit 24.8 21.9 Non operating items (18.2) (3.1) Net interest payable (4.4) (7.5) Profit on ordinary activities before tax 2.2 11.3 The continuing household business includes goodwill amortisation of £1.3 million As at As at 30 June 30 June 2002 2001 £m £m Non operating items consist of the following: Profit on disposal of discontinued operations - 2.9 Share of joint venture's operating loss (1.2) (2.5) Share of joint venture's goodwill amortisation (0.3) (0.4) Goodwill impairment in Joint Venture - (2.1) Write-off of goodwill in Joint Venture (15.8) - Share of joint venture's interest payable and similar charges (0.9) (1.0) Total non operating items before tax (18.2) (3.1) Share of joint venture's tax credit on ordinary activities 0.2 1.3 Total non operating items after tax (18.0) (1.8) Restated As at As at 30 June 30 June 2002 2001 £m £m Net assets by geographical origin are analysed as follows: Continuing operations UK 82.2 82.1 Continental Europe 84.9 88.1 167.1 170.2 Non Operating liabilities (102.5) (98.8) Net assets 64.6 71.4 Non operating liabilities include cash less short and long-term borrowings, provisions for liabilities and charges and dividends It is not possible to provide an analysis of the net assets by class of business as a number of the Group's operating sites manufacture both Private Label Household and Personal Care products Notes: 1. The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2002 but is derived from those accounts. Statutory accounts for 2001 have been delivered to the registrar of companies, whereas those for 2002 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. Share of joint venture. On 5 November 1999 a joint venture, Aerosol Products was set up from the Hull site of Robert McBride Limited and the Thetford site of Nichol Beauty P(roducts Limited. During the year, the 50% shareholding was transferred equally between The Royal Bank of Scotland and Credit Agricole Indosuez to maintain the Joint Venture relationship. Its results are included in compliance with FRS 9 - Associates and joint ventures. 3. The Annual Report for 2002 will be issued to shareholders on 17th October 2002 and will be available from the Company Secretary at the Company's registered office, McBride House, Penn Road, Beaconsfield, Buckinghamshire HP9 2FY; the Annual General Meeting will be held on Monday 2 December 2002. 4. The calculation of earnings per share is based on the profit on ordinary activities after taxation and minority interest divided by the average number of shares in issue during the year of 177,639,197 (2001: 177,639,197). 5. If approved at the Annual General Meeting on 2 December 2002, the final dividend of 1.4p per share will be paid on 3 January 2003 to shareholders on the register at 6 December 2002. This information is provided by RNS The company news service from the London Stock Exchange


Mcbride (MCB)
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