McBride Passionate about Private Label

Executive review

The efficiency initiatives from the 'Manufacturing our Future' strategy are already visible in our financial results.

Full year Group revenues at £680.9 million were £23.3 million, 3.3% lower than the revenues reported for the prior year. The translation impact of a weak Euro for most of the financial year was responsible for approximately half of this headline reduction. On a constant currency basis, sales were lower by £13.5 million (‑1.9%), with Household sales lower by 1.9% and Personal Care & Aerosols (PCA) lower by 2.1%. A key objective of the 'Repair' phase of our strategy implementation was to reduce the levels of complexity in our customer and product portfolio. This action will see Group revenues on an annualised basis reduce by approximately £20.0 million. This initiative commenced in the second half year such that in the twelve months to 30 June 2016, the impact lowered revenues by £6.0 million, equating to approximately half of the year‑on‑year reduction in Group sales (at constant currency).

Overall volume levels were unchanged across the total Group but the impact of ongoing price pressures in most of the Group's markets continued to drive the revenue line lower. This was most evident in the UK business, which saw pricing lower overall by approximately 4%, offset by implemented efficiency and raw material changes. Full year adjusted operating profit was £36.2 million (2015: £28.5m) with adjusted operating profit margin increasing to 5.3% (2015: 4.0%), slightly ahead of the projected 1% per annum improvement outlined in our three to five year progress towards our 7.5% ambition. Excluding the impact of translation exchange rates, adjusted operating profits improved by 29.3% or £8.2 million. Full year operating profit increased by £23.2 million to £32.9 million (2015: £9.7m). Based on adjusted operating profit, the improved profitability levels led to an improved return on capital employed ratio, with the measure rising to 23.4% (2015: 18.8%).

A significant proportion of the year‑on‑year profit improvement related to cost savings initiatives, either in overheads or from structural buying improvements. During the year to 30 June 2016 all remaining actions under the UK restructuring project, announced in 2014 were completed. As anticipated, the project is delivering an annualised benefit of £12.0 million. In June 2015, we announced a cost savings project affecting our sales and finance administration with savings of £2.9 million delivered in the year. Additionally, a consequence of the initiative to decrease customer and product complexity has been to reduce the burden of managing these activities, facilitating further overhead reductions. In the past financial year, savings amounted to £2.2 million with the ongoing annualised benefit expected to amount to £4.7 million, more than balancing the margin lost from reducing customer and product ranges.

A further benefit of the business simplification actions is being generated through purchasing efficiency. Our purchasing teams are active in driving scale benefits in many aspects of our procurement activities. The significant effort to drive technically‑led formulation simplification and thorough reviews of how and what we buy has led to a steep fall in the number of components and chemicals used by the Group, which realised a benefit of over £5 million in the year. These purchasing benefits and a range of efficiency initiatives in the factories have delivered improved gross margins, which rose by 1.2 percentage points to 35.8%. (2015: 34.6%) despite the effect of lower customer pricing.

The year was a strong one for cash management with cash generated from operations before exceptional items of £52.5 million (2015: £44.2m). Capital expenditure cash flow slowed to £12.8 million (2015: £21.9m) as the new investment strategy outlined in the 'Prepare' phase was under development for much of the year, impacting short‑term investment decisions.

Cash outflow for exceptional items of £4.2 million (2015: £10.7m) primarily reflects the impact of the charge taken in June 2015 for central overhead restructuring and the remaining cash costs associated with the UK restructuring project announced in June 2014.

Net cash flow before payments to shareholders was £19.7 million (2015: £2.3m). Cash payments made to shareholders during the year amounted to £5.8 million (2015: £8.7m), the reduction a reflection of the reset of the dividend policy announced in September 2015. Reported year‑end net debt reduced by £1.5 million to £90.9 million (2015: £92.4m), comprising a strong net cash flow of £13.9 million reduced by £12.4 million of translation impact as a result of the weaker Sterling exchange rates on Euro and USD‑denominated borrowings. Financial instruments to hedge this exposure saw an equivalent rise, but are included in balance sheet but not recorded within net debt.

The Group's balance sheet strengthened through the year with net assets rising by £11.6 million to £69.1 million (2015: £57.5m). Gearing improved further to 59% (2015: 61%) and the debt cover ratio fell to 1:7 (2015: 1:9). The Group has significant borrowing capacity with headroom of £127.5 million (2015: £94.6m) on committed debt facilities. The Group traded throughout the period with ample headroom on its banking covenants.

Segment review image

Rik De Vos
Chief Executive Officer

Chris Smith
Chief Finance Officer

22 September 2016

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