A second wave of commodity price increases and a deteriorating British grocery market will hit profits at cleaning products maker McBride, it said on February 7, sending its shares to a 24-week low.
McBride, Europe’s biggest maker of own-brand household cleaning products for retailers, said a surge in the price of plastics and vegetable oils in recent weeks could add around £7m to its costs in the second half of its fiscal year, after an “£8m hit in the first half.
“In recent weeks, we’ve seen a second wave coming … an additional raw material spike which we will have to deal with,” chief executive Chris Bull told reporters.
A surge in the price of ICE Brent crude to around $100 a barrel, coupled with fresh increases in food prices, have sent shock waves through consumer products makers in recent weeks.
Unilever said in early February it would raise prices and slash costs to offset soaring costs.
“The market is clearly nervous on the issue of cost inflation across the consumer sector and there is still considerable uncertainty around when costs may start to abate,” said Investec analyst Nicola Mallard, cutting her full-year pretax profit forecast for McBride a fifth to £28m.
Analysts think makers of branded consumer products are in a stronger position to drive through price increases with retailers than manufacturers of own-brand goods like McBride.
McBride, which supplies firms like Tesco and Carrefour with own-label goods ranging from dishwasher tablets to deodorant, said it aimed to achieve a further £11m in annual cost savings over the next two years to help absorb the pain.
Bull said these savings could include closing factories and moving manufacturing to cheaper locations.
He was also confident about longer-term prospects for the firm, noting good growth in central and eastern Europe and the possibility that more consumers will switch to cheaper own-brand products as austerity measures bite.
Tough times in UK grocery
McBride said operating profit before goodwill and one-off items fell 24 percent to £20.2m in the six months ended December 31, due to a lag in recovering previous increases in input costs.
Sales rose 2 percent at constant currencies to £407.9m, while the interim dividend was kept at two pence a share.
Bull said Britain’s grocery market in particular hit “a very difficult period” in December and January and described the outlook for consumers as challenging amid rising bills, taxes and public spending cuts.
The level of promotions by branded manufacturers remained at a high level, though below a year ago, he added.
Bull said McBride would continue to look to expand in central and eastern Europe, and that southeast Asia and Australia were also attractive markets in the near term.
The group also plans to focus on growth areas in its household goods markets, like laundry liquids and non-aerosol air fresheners, and expand in fast-growing personal care markets like skincare products for men and oral care.