Shares in McBride (MCB) have risen 3.5% to 90p on rather subdued results for the half year to December. Yet the modest rally follows a plunge yesterday triggered by the private label household-to-personal care products supplier’s profit warning, while shares in McBride are down 60% from five-year peaks around the 230p mark.
Led by CEO Rik De Vos, Manchester-headquartered McBride develops and supplies products for sale under retailers’ own brands, often referred to as private labels or own labels.
These span everything from toilet cleaners and laundry products to shower gels and toothpastes and are supplied to leading international grocery retailers.
Following a successful restructuring, McBride has become a simpler business with a sharpened focus which is more attractive to its retail partners.
Yet it is struggling to shake-off a reputation as a business ‘squeezed between giants’ - think supermarkets and the large household goods and personal care brands - as well as a serial earnings alerts issuer.
The shares sold-off heavily yesterday as McBride cut its full year 2019 guidance yesterday to a 10-15% year-on-year pre-tax profit decline.
This is disappointing given that consensus called for a 13% improvement and implies a pre-tax profit range of £28.2m-to-£29.8m versus consensus of £37.6m, so a very material 21%-25% earnings cut.
The margin-crimping catalysts for the latest earnings alert were further hikes in distribution and input costs.
HALF YEAR BRIGHT SPOTS
However, today’s first half results demonstrate that McBride’s sales growth remains rather robust, with sales up 10.5% to £369.2m thanks to business bagged in the UK and Germany and an early contribution from acquired auto dishwash-to-laundry products supplier Danlind.
Adjusted pre-tax profit from continuing operations of £14.5m is broadly flat year-on-year and net debt is lower, reduced from £114.3m to £98m year-on-year, thanks to strong cash flow and disposal proceeds.
The determined De Vos is confident of generating ‘further good sales growth’ in the second half.
He comments: ‘McBride made significant strategic progress in the period, delivering strong growth in revenues whilst completing the European PC Liquids sale and the integration of Danlind onto the McBride IT systems. In order to seek to mitigate the effect of rising costs, the business has been implementing price increases and continues with further supply chain efficiency measures and overhead rationalisation actions to counter continuing cost inflation.
‘Given McBride’s market leadership, sound financial position and continued growth prospects, the group remains well placed in the current difficult trading environment to make further progress against its strategic ambitions.’
BREXIT RISK
Elsewhere within the statement, McBride addresses the elephant in the room, namely Brexit. The company says it remains concerned by the lack of progress towards clarity on the various implications for its business activities which may arise from the UK’s withdrawal from the EU.
A so-called hard Brexit could lead to potential additional costs on imported raw materials, since a significant part of McBride’s raw materials for its UK production is imported from the EU.
The UK speaks for roughly 30% of group revenue and for most product ranges, McBride produces in the UK for domestic customers and there is a very minimal level of exports from the UK factories for its EU customers.
Nevertheless, there are certain specific product ranges imported to the UK from the EU that would be impacted with cross-border movement and McBride says it is making limited contingency arrangements.
