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Executive review

During the year, the Group successfully completed the sale of the PC Liquids business, following the disposal of its Skincare business in the Czech Republic the previous year. The financial results of both these businesses have been treated as discontinued operations in both the current and prior year financial statements. The remaining activities within the Group are referred to as continuing operations.

The use of the expression ‘underlying’ refers to figures excluding the impact of acquisitions or disposals and stated at constant currency.

Continuing operations
Income statement
Despite a tough retail and competitive environment, the Group achieved encouraging overall underlying growth of 2.7% in the year within its continuing operations. This was due to a combination of both contract wins and the positive impact of the Danlind acquisition on the Group offset by the impact of lower sales following the closure of our UK Aerosols manufacturing site.

Full‑year Group revenues at £721.3 million were £31.5 million (4.6%) higher than the prior year. This was aided by a full year of revenues from Danlind, which was acquired in the second quarter of the prior year. On an underlying basis, full‑year sales were £18.5 million, or 2.7% higher.

In Household, which now includes Asia, full‑year underlying growth ended at 3.7% higher year‑on‑year. This performance was driven by significant year‑on‑year growth in Germany, the UK and Asia, offsetting continued challenges in our France and North markets. Aerosol revenues at constant currency declined 9.3% or £5.4 million year‑on‑year as a result of the exit of the UK Aerosols manufacturing site, which closed during the second half year.

Following more than two years of inflationary cost pressure, primarily related to raw material and distribution costs, the Group instigated price increase actions and was able to secure a net £7.8 million (1.1%) across a range of customers and product categories within the year. Against the backdrop of a highly competitive market and with retailers facing their own margin challenges, this action proved difficult to deliver across the business and, with few other competitors following, we have seen consequences in terms of lost contracts into the new financial year.

During the year to June 2019, the Group did not see any weakening of the significant direct cost inflation seen in the past few years. Raw material, packaging and energy costs increased by a further net £6.6 million (1.9%) versus the prior year. Direct Labour costs increased by a further £1.1 million due to the effect of labour cost inflation. The ability to offset these with further progress on savings was limited by the operational challenges that resulted from the significant additional volume first introduced towards the end of the previous year. Consequently, not only did the Group defer certain efficiency and rationalisation initiatives across its manufacturing sites, but it also incurred costs from actions to resolve these issues, estimated at £1.6 million.

Distribution price pressures continued through the year due to transport capacity issues and the tight labour market for drivers. Service issues at a numbe of our manufacturing locations meant we also incurred additional spend to meet customer commitments. The combination of both these factors on costs was significant, with distribution costs increasing £6.5 million (13.3%) versus the prior year excluding the impact of increased volumes. During the year we were required, at short notice, to re-locate two of our key distribution centres. This activity, together with managing logistics
in such a difficult market, has caused further delays in the previously signposted footprint review and consequently limited our ability to accelerate actions to improve our overall distribution cost position.

Across the Group, overheads remained under tight control despite the challenges of growth and penalties from the customer service issues experienced within the business. Excluding labour inflation (£2.1 million) and increased depreciation costs (£0.7 million), overhead costs were broadly flat year‑on‑year.

Full‑year adjusted operating profit was £28.9 million (2018: £37.7m) with adjusted operating profit margin decreasing to 4.0% (2018: 5.5%).

At a segment level, adjusted operating profits saw Household reduce to £39.9 million compared to £46.7 million for the previous financial year. Aerosol loss grew to a loss of £4.0 million (2018: £2.2m loss), mostly from overhead allocation post the closure of Hull. Corporate costs remained broadly unchanged at £7.0 million (2018: £6.8m).

Full‑year operating profit was £26.6 million (2018: £31.8m). This includes amortisation of £1.9 million and exceptional charges of £0.4 million.

To read the 'Executive Review' in full, please go to page 16 of the new Annual Report.

Mcbride Executive Review Diagram 2019

Chris Smith
Interim Chief Executive Officer

5 September 2019

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