Mcbride (LON:MCB) has completed its repair phase of the turnaround programme and has commenced the Prepare phase. The business is performing in line with what management had set out at the start of the programme, and overall progress demonstrates that McBride is indeed now more focused on the bottom line, as key financial ratios are improving.
The acquisition of Danlind for £39m, announced earlier this week, demonstrates that execution of the prepare phase is already well underway.
Holding up in a challenging environment
FY results were in line with expectations and trading in the new fiscal year has had a satisfactory start. Revenue pressures remain, but the company's unrelenting focus on cost and efficiency should continue to mitigate them. Management expects performance to be weighted towards H2, a reversal of the trend in FY17, as most of the raw material cost increases seen last year will be more evident in H1, with comparatives easing in H2. The current trend for food price inflation makes it hard to pass on price increases in other consumer categories such as household, which is not helpful, and the termination of the PCA (aerosols) business sale is an additional distraction as the business needs to be reintegrated into the company.
Contract manufacturing and I&I: New growth?
As outlined at the H117 results, there is an increased trend towards contract manufacturing. Branded manufacturers are increasingly under pressure to review cost structures, and McBride has engaged meaningfully with a number of potential customers. These projects will take a while to come through, but progress is nonetheless encouraging as the segment could be a new area of growth. Separately, the Danlind acquisition brings a new channel to McBride Institutional and Industrial (I&I: hospitals, hotels, restaurants etc).
This is a segment where the company has no historical presence and could provide an interesting new growth opportunity if McBride chooses to expand the I&I business beyond Danlind's Danish core.
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