Mcbride Plc Ord

Good afternoon and thank you to those of you who are joining us. There is quite a number of you, so if you just bear with us while I allow everyone into the meeting. Great. Okay. Well, thank you for joining us this afternoon. We're here to hear from McBride PLC who announced their results earlier this week. Today we're going to have a brief introduction followed by a video and then on to the main bulk of the results presentation, which was shared with analysts, as I say, earlier this week. Then we will have an opportunity for Q&A at the end. Please feel free to submit them as we go through the presentation, and we will take as many as we can in the time that we have allocated, which is the hour. So without further ado, I will hand over to Chris Smith.

Thanks, Hannah. Good afternoon to everyone. Thank you for joining this call. So as Hannah said, I'm Chris Smith. I'm the CEO, been with the group coming up for 11 years now. And I'm joined here today by Mark Strickland, who's our CFO. He's been with the group around five years. I thought, so first of all, I'm going to kick off with a very rapid introduction to McBride. For those of you who don't know anything about us, we have a small corporate video, which explains a bit more. And then we will, as Hannah says, rattle through the results presentation we gave yesterday. So look, this is McBride on a page. We are the number one, the leading supplier in our space across Europe of household cleaning products. We are, we're almost coming up for a hundred years old. We are a pan-European business. We are not just a UK business. Our heritage is UK. We're coming up to, you know, 1927, it was formed in Manchester. Well, we now have something between three and a half thousand, 3,600 people across 18 locations and 13 countries. selling over a billion consumer units to our customers, which are predominantly retail customers. So you'll see here on the bottom left, 84% of our business is what we call private label or white label. So this is, and I'll come on to a bit more about what that is. And we have a small amount of volume into contract manufacturing where we manufacture for brands. You'll see on the bottom right, we are a pan-European business. Everyone thinks we're just a UK company. We're not. UK is our third biggest market. Germany is our number one market, nearly a quarter of the group, and France, UK, Italy, Spain, the main countries. And we are doing, as you'll hear in the results, just under a billion pounds of sales in the year to June 2025. Next slide, please, Anna. So it's really important for people to understand, I think, in our business model, Private label, or some people call it white label, is at our core. That is the roots of the business and the absolute core mission of the company. You can see our purpose statement here, everyday value cleaning products. So every home could be clean and hygienic. We are your everyday supplier of everyday products that you see in the supermarket aisle. I'll come on to the product ranges in a moment. And I just would like to point you, if you get the chance and you're on LinkedIn, join us and look us on LinkedIn. We've just been doing a series of interesting articles that paint the backdrop to what is private label? What does fast followership mean? What does McBride offer to the market? So there's some really good posts that have been coming out in the last three or four weeks. I would point you to look at those if you get the chance. Gives you some nice background around the company as well. Next slide, please, Hannah. So the products that we manufacture are summarized here. And in reality, the sort of really, the main three thrusts for the group are laundry products, dishwashing products, and surface cleaners or household cleaners. We also have some hair care products from our aerosols business. And in laundry, it's everything you would imagine if you're stood in the aisle in Tesco, from laundry powder to laundry liquid to laundry capsules, fabric conditioner, stain removals, all those sorts of things that you would see. Dish the same, tablets for automatic dishwashing machines, dishwash powders, and of course also hand dishwash, very liquid equivalents. And cleanliness is everything you imagine with a spray onto a surface, table cleaning, surface cleaning, antibacterial sprays, toilet cleaners, bleach, all those sorts of products. So absolutely pretty much everything you will see in the household aisle of a retail partner. Next slide, please. We run our business across five divisions, product driven. So you can see the five divisions here, liquids, which is anything that you pour basically out of a bottle, out of a carton, out of a pouch. We do what we call unit dosing. So those are your dishwash tablets, your laundry pods, and increasingly the soft pods that you have in dishwash. Powders is what it says on the tin. It's absolutely the familiar thing that most people remember in laundry powders and dishwash powders. Then we have an aerosols business and we have a kind of incubator fledgling business in Asia doing predominantly actually personal care and household products. Next slide. The industry, as you will know, and you will see if you stand in the aisle of a supermarket, is all about ultimately innovation in the products that you're being offered as a consumer. And the real focus in innovation nowadays is all around packaging and compaction, better formulation to reduce carbon footprint. McBride is at the forefront of this in the private label space, whether it's recycled plastic. We've been the first to market, for example, with laundry liquid in what looks like an orange juice carton. You can buy that in Sainsbury's, for example. We're the first to market with a paper bag rather than a plastic bag. for laundry powders. And we're the first as well to the market with a cardboard box rather than a plastic tub, for example, for laundry capsules. So the world is moving fast. The retailers are very demanding in this space. And it's a key aspect of our business, as you might imagine. And then finally, on this sort of intro deck, why is McBride successful and the number one in this space? And look, we pride ourselves on being the most competitive, the most reliable and the most innovative supplier to the trade across all the markets in which we operate. We are hugely customer and market oriented and focused. We bring significant scale that brings fantastic distribution networks. It brings buying scale for things like raw materials and also, of course, things like innovation. We have distributed in our asset base. Transportation is expensive to move bottles of washing up liquid around. So we have a distributed asset base. pretty unique in the industry. We pride ourselves on expertise and being absolute leaders in the specialisms that are needed for these categories. And with our new strategy that's been in place now for three to four years, absolutely focused and disciplined on what we're trying to achieve in our strategic outlook. So that's a very, very rapid rattle through, but right at a glance. Hannah, we now got a corporate video, if you would suggest to play that. This is available on our website, the corporate video, by the way, in the Who We Are section. So if you want to watch it again, you can at your leisure. But over to that.

My name is Sandra Azendorf. I live with my two children and my husband. My children get really dirty while playing football, in the garden, everything that children do every day. The household costs have doubled with us and that's already enormous. First of all, we have to switch to our own brands, simply because the prices have gone up enormously.

McBride is proud to be the number one supplier of private label household cleaning products across Europe, partnering with virtually all the leading supermarket chains, proudly bearing their name in pursuit of giving their customers the option of affordable, effective hygiene for their families and their homes. The people at McBride are what make the difference to our company. Whether they're in the laboratories, in the factories, or on the road selling, our teams remain committed and passionate about the business.

My passion is the innovation. My challenge is to make everyday cleaning products more performant, more sustainable and affordable for the consumer.

We've committed to science-based targets for our operations and our supply chain with the ambition of mobilising our entire organisation to reduce our corporate carbon footprint in line with climate science.

Actually, it's really rewarding for me and my team to know that our daily work are so positively impacting the society. So we are there to solve problems and to have a little bit of fun.

Thanks to our pan-European presence, we are able to collect and provide valuable information on market trends, consumer expectations, shoppers' expectations, in order to best meet our customers' needs.

Our factories have to produce very efficiently. We continue to invest in our factories. But we also continue to work on improving efficiency and productivity.

In our factory, we are constantly looking for ways to guarantee the best quality and price ratio. A unique approach where ownership and drive are central. In our factory in Ypres, we produce about a million bottles a day.

If you look at the production of Unidoze products, because they are relatively small, the speed of production is very high. And if you see a large amount of the product with the right quality coming out of a line, it gives a great feeling that you eventually convert such a small product into full pallets, full trucks, which eventually end up on the shelf with the customer. That's nice to see, very nice.

My vision is for customer service and logistics to become an indirect driver for growth for McBride. The move from Köpen de Gera moved us 500 kilometres to the east, which moved us closer to our liquids factory in Poland, but also closer to the centre of gravity for two of our biggest customers in Germany.

It also has advantages that you are in different locations. Because the transport costs play a role. So we have a factory in Likkers in almost every large country. So we can respond to the customer's question much faster.

McBride is a pan-European end-to-end business. Our 3,500 colleagues are engaged in multiple activities. We produce nearly 1 billion consumer items across our 13 factories and we ship 1.3 million pallets through our 12 logistics centres to over 200 customers from Bordeaux to Brisbane, Malmo to Malaga. Increasingly, we see shoppers making the choice to private it because they know at half the price of the branded equivalent with no compromise on quality and performance, they're getting value. As a dad, I know that cleaning products are an essential part of daily life. You need things you can rely on if they come home dirty, wet from sports or from school. You know you can overnight wash and get your laundry sorted with products that you know will always work. And that makes me very proud that I know every product we make in this business will do that.

When it comes to the well-being of your children, the cleanliness of the household, that's where we don't want to compromise. No, I won't go back again. Because the own brands are just as good.

Great. Thank you, Hannah, for sharing that. So we'll now move on to the slide deck that we presented yesterday and as part of our results announcements. And look, it's really, you know, it was an absolute pleasure and I'm super proud as part of the leadership team to be able to present the numbers that we did yesterday. Continued proof, really, of our rebased, much improved business. I'd like to think that another set of strong performance results, as we're sharing with you today, will begin to turn heads as we cement our performance at these new levels as the leading business in its sector in Europe. And as you'll hear through this presentation, the group's confident of its position and progress towards its strategic goals. This confidence is behind the reinstatement of our annual dividend, all of which will help support more investor interest in the group and the potential value opportunity. As you will hear shortly, McBride is also a much stronger all-round business. Our platform is much improved. Yes, we've turned around the financials. We've doubled our EBITDA returns from historic levels and we've normalised our balance sheet in the past few years. But equally worthy of note is the extent to which we've improved many of what you might consider to be background features and aspects of the group's performance. And therefore our credibility with customers, suppliers, colleagues, banking partners and other stakeholders is much improved. These core capabilities have continued to grow in a competitive and price sensitive market while sustaining these high levels of profit margin. We've seen a lot of doubts in recent years that we can maintain these profit levels. So I'm delighted to say this is our fifth consecutive reporting period of these new profit levels with our outlook consistent to retain at this current level. Our heightened profitability has translated well into strong cash flows strong cash generation. Our net debt has fallen again. It's now close to £100 million and our debt cover level is well ahead of our 1.5 times target. We mentioned at our Capital Markets Day 18 months ago that we had a series of options and ideas to support further growth and expansion of the group as part of its strategic growth agenda to further its leadership in the industry. Our balance sheet is now able to permit the group to be considering these options behind what we call our core plus and our buy and build ambitions. Finally, this financial position overall and our confidence for the future has permitted the board to announce the reinstatement of annual dividends, with this first dividend for over five years now, recommended at three pence. Next slide, please. And again, thank you. At our Capital Markets Day March 2024, we outlined our strategy direction and our midterm financial targets. It is really pleasing to be able to report good progress towards these targets, as outlined on this page. In revenue terms, our growth ambition of 2% per year is a volume target. And whilst revenue growth in the last 12 months in GBP terms was up just under 1%, in volume terms, our growth was at 4.3%, demonstrating continued progress with our growth task. Our profitability held at 9.3% in terms of EBITDA, Good profit growth in our powders, unit dose and aerosols businesses was offset with slightly weaker margins in our liquids business, which was off just under 1%. As I said, our cash performance was very pleasing. Despite increased capital expenditure, net debt fell again and debt cover is now at 1.2 times, beating our target of 1.5 times. Part of the net debt improvement was the result of good working capital management, which offset higher capital additions with the result that Rocky held at levels reported last year, 33%, and significantly ahead of our 25% target. I will update you shortly on our transformation programme, but this remains central to our strategy delivery and is now delivering net benefits and remains on track to hit the 50 million pounds cumulative net benefits over five years. The leadership and the board of McBride are focused, are laser focused, shall I say, on delivering the strategic ambitions for McBride and its stakeholders. And we remain confident we have the right team and the right direction to deliver on these targets over the midterm. Next slide. Whilst most of the headlines the investor audience will want to hear will centre around our improving financial metrics, I'm also super proud of the excellent performance across a range of our other crucial areas that point to McBride being a stronger overall business now and for the future. Service levels to customers, we call it CSL, is a key hygiene factor for any supplier into retail. Our work in our transformation program on service excellence and strong focus across the business has seen the best service levels in the group for over six years. This position has been right really well for any new business opportunities, margin management conversations, but also keeps our logistics and internal servicing costs to the optimum levels. ensuring we're as efficient as possible in our manufacturing has stepped forward again this year with focused continuous improvement teams driving machine efficiency in the factories, yielding on average something like a 2% improvement in operating effectiveness. And finally, on this slide, I'm not going to go through all of these. I'm just going to talk about our sustainability ambition. We have continued to make real progress with our carbon footprint reduction ambitions, real reduction in absolute carbon levels in the last 12 months, despite volume growth, and actually reporting what we call an intensity level reduction of minus 8%. So we're on track to deliver our carbon commitments. Next page, please. A key feature of our reset business and our new strategy is to be far more informed and better aware of what is happening in the markets as a whole. We have spent a significant amount of time developing our data analytics to support our understanding of how we're performing relative to the market and how the market itself is performing. We buy panel data for the five countries that the flags are shown on this slide, and we can track quarter by quarter a rolling 12-month total market products in the categories that we supply. The graph on the left shows the total market volumes over time, each bar being our next quarter on and the last data to June 2025. The dark green bars represent the branded volume and the light green bars represents the private label volume. The overall market moved up a little bit, 1% in total, but as you can see with the top line on the chart on the right, the private label growth continues to outperform the branded volume growth. Private label share has grown to 35.5%, up from around 30% three to five years ago, And that would appear, that line on the chart, which is that private label share, has steadied and is holding now at these new high levels. And evidentially, if you look at other sectors like pet care, pet food, baby diapers, ice cream, private label share, when it makes such a significant step change, stays at these new levels. And we expect that to continue in the coming year. In the branded space in this last 12 months, we have seen a longer period of promotional activity from the branders, typically in the springtime. We haven't seen that for a few years now. There was some impact into our volumes and the market more generally during the end of what is our quarter three, so February, March, and it's a bit into April. But since then, we have seen generally private level demand return to normal levels, solid and robust. In terms of categories, quite some differences in category penetration for private label. A key focus and strategic direction for us is laundry. Laundry is typically the highest value, highest margin part of the market. It's the least penetrated for private label. Typically just under 30% for laundry, where you compare that to dishwash, where penetration is 44%. Overall, we grew our volumes in private label just under 2%, as was evident in the market as a whole. And we did particularly well in dishwash, where we outperformed the market heavily. And in laundry liquid, which is a key priority and focus strategic area for us, we grew that business 7% against the market that grew 2.8%. So trends in the market are still favouring private label. We believe that they will hold at this level and our growth in the future will be coming existing customer base. Next slide, please. So just very quickly on our divisions, for your information, all these divisions have their own management teams. We have a series of shared resources like purchasing and transportation and central finance and IT, for example. But all other functions reside and are accountable within profit and loss accounts for each of these five divisions. Liquids is our of the group. And we saw a good performance from the business this year, growing top line, moving up in contract manufacturing. We onboarded a significant new contract manufacturing contract in France. We've progressed strongly with our operational excellence agenda, driving lean approaches in manufacturing. And we continue to invest in automation and reduction of headcount through robotics and end-of-line automation. That business is cost-oriented, by the way. You'll see each of these divisions has a strategic focus and the liquids is typically the most competitive environment. It's the lowest barriers to entry, cost leadership essential as a strategic focus for that division. Our unit dosing business is much more about product leadership. This is a fashion thing. You see frequent changes to formats, these typically high priced on shelf. And we work hard to lead in this space by driving new innovation, new formats all the time. Two new dishwasher formats introduced in the last year. And we are bringing to market the first soft dishwashers. dishwash fusion product, we call it, into market right now. But actually the performance improvement for unit dosings last year, when you see the profit numbers, was all about its operational performance. These are very difficult products to manufacture, very fiddly, quite intricate machinery. We've had a fantastic step up in output, waste reduction levels and labour efficiency through the factories. So great to see the progress that business, our most profitable business, has performed this last year. quickly on the others laundry powders and dishwash powders is a declining market so this is a this is a you this whilst it needs to be cost leadership it's absolutely about specialism and expertise a lot of work for sustainability on compacted products over the days of 10 kilo boxes of laundry powder you now buy one one and a half kilo bags of laundry powder to do the same number of washes That's very good for the carbon emissions and good for transport and everything else. And we've had a great job there, even though the market has declined slightly, strong delivery and margin expansion through operational performance improvements. I'll quickly touch on aerosols. This business was loss-making when we started the journey of divisionalising this business last year. It's grown 21%. It's absolutely leading in its space. And we are very positive about the outlook for our aerosols business. Next slide, please. And I'll just touch now on our transformation programme. So we launched this a transformation program around a series of what I call excellence projects about two years ago. And the outcome was to obviously try to drive value and drive benefits. And we targeted 50 million across the five years from 23 to 28. But they're all around improving the platform that the bride has got. The backbone to this project is our SAP upgrade. We are currently an SAP customer. We have SAP across our division, but it's a 26-year-old SAP and we are now migrating to the latest generation. This is a multi-year project, it's the backbone really of our excellence agenda, standardising processes, absolutely harmonising the way we work across every location and obviously they're driving efficiencies, much more analytics, digital interfaces, AI experiences as well. well on track we have our first go live in uh first of november we're doing it on a very limited site by site basis so we're not exposing the whole business to this at one go but our first one is coming up in november and we're very positive and a good place on the roll out of that project our commercial and service excellence programs are actually now in the phase of closing out the project work streams and readying for handing back to the business as business as usual We have made great progress with both these initiatives and time is right now to bed in the change they've brought and continue to deliver on the benefits each are already showing. Our service performance statistics show the progress. We're up to 94%. That's the best in six years. And our improved pricing and margin management, evidence of the commercial excellence programme coming through in our results. As we go forward, we will see these full-year benefits roll continuously into our results going forward. The expected benefits from SAP and our productivity programme coming a little later in the five years. But we're also driving overhead efficiencies out. We removed 60 people at the end of the last year, financial year. People were underperforming. We have a rigorous assessment of individuals now. We've upped our game as part of that platform on our HR disciplines and HR processes. And we've cut costs and we're driving overheads out by... by Joby Drive performance across all aspects of the company. So that's my rapid overall business progress update and hopefully you've heard about not just about our financials but also the strong all-round business that Bride now is and how we have set up for continued progress towards our mid-term goals. I'm going to hand it over to Mark now to cover off some of the financials.

Thank you Chris and good afternoon everyone. I'm pleased to have reported an excellent set of results for the financial year ended 30th of June 2025. As you'll see, the business has further strengthened its balance sheet, increased its liquidity and through the reinstatement of the accordion has further increased its optionality for future investment and capital allocation. As a result, I continue to have huge optimism for what the business can deliver for its shareholders into the future. So looking at the 2025 financial year in a little bit more detail, whilst group revenues were down £8.3 million, or 0.9% on an actual basis, on a constant currency basis, they actually rose by 0.7%, or £6.5 billion. Contract manufacturing especially has helped this constant currency growth. As a business, we continue to look closely forward, sorry, closely analyse forward-looking raw material and packaging trends, adjusting sales margins accordingly. This, combined with close operational and overhead cost control, means that at £66.1 million, our adjusted operating profit has been maintained at similar levels to last year. Over the last three years, we have progressively strengthened our balance sheet through cash generation and debt reduction. For the 2025 financial year, our free cash flow was £93.9 million and our net debt further reduced, ending the year at £105.2 million. This gives the business a great platform for further investments in growth. Next slide, please. This slide looks at the group and divisional performance on both an actual and a constant currency basis. If we look at the left-hand side at the actual revenue figure, there were two notable impacts at play. Firstly, volume growth of £39.5 million, or 4.3%. This arose from new contract manufacturing volumes, continued private label volume growth, and a significant growth in our aerosols business. The second impact was the price and mix effect of negative 33 million. This is because there were more sales of lower value products in financial year 25 versus financial year 24. It should be noted, however, that though the selling price may be lower, the profitability is often similar to other products as these are also lower cost format products. I've included the tables on the right hand side of this slide because of the significant impact of currency during the 25 financial year. I won't go through the detail, but this clearly illustrates the point that whilst an actual currency, both revenue and operating profit reduced slightly when looked at on a constant currency basis. In fact, both revenue and operating profit grew. Next slide, please. And in the interest of time and allowing questions, I'm actually going to skip over the divisional detail and move on through the divisional slides to slide 18. So you can look at the divisional slides in detail. They just give a little bit more about each element of our business. So what I wanted to do is spend a little time on looking at costs. As you can see, input costs were broadly flat. So looking at the left-hand chart, costs broadly flat. But as you can also see, they remain significantly higher than back in 2021. Inflation is still prevalent and some costs are still rising, albeit at slower rates than over the last few years. This is why McBride's continuing focus on margin management has been key and will remain key to the delivery of another good set of results and similar results into the future. This consistency of performance means that McBride as a group remains very well placed to sustain and grow profits into future years. In terms of overheads, as you would expect, we continue to our focus on cost optimisation. And I deliberately talk of cost optimisation, not cost reduction, as we will continue to spend in areas where we believe the returns and benefits of any expenditure exceed the actual cost increase. As with most businesses, technology remains a key focus and indeed McBride has embraced new technology, believing that this will be a key positive differentiator going forwards. Just some examples. We will shortly be going live with Wave 1 of S4 HANA, as Chris has said. We continue to invest into and benefit from our data analytics function. Again, a real-life example of this capability is some of the market analysis information that you saw in Chris's earlier section. We're also actively developing appropriate uses for AI across the business. Lastly, it would be a miss of me not to talk about distribution costs, which actually rose to 9.2% of revenue from 8.7% of revenue. This was actually as a result of the higher volumes we put through the business at the lower selling prices. So you had higher volume whilst revenue didn't necessarily increase. Next slide, please, Hannah. So looking at pensions, year on year the IAS 19 pension deficit decreased to £24.9 million from £29.4 million due to the deficit reduction contributions paid by the group, a lower value of liabilities and lower than expected inflation. The deficit is comprised of a UK-defined benefit deficit of £23 million and a post-employment benefit obligation outside of the UK of £1.9 million. For information, the UK scheme is closed to new members and future accrual. Within the UK scheme, contributions for the financial year 2025 totaled £7 million, being made up of £5.3 million of deficit reduction contributions and a one-off payment of £1.7 million to remove the pension trustee's dividend matching mechanism, which was put in place a couple of years ago. That £1.7 million has already paid back as without removing it, the trustees could have claimed that they could get £5.3 million, which is the cost of the dividend. So for the price of £1.7 million, we've avoided a £5.3 million cost. The 31st of March 2024 trial annual valuation was agreed with the trustees during the year. And as part of that agreement, McBride has agreed future pension deficit reduction contributions of 5.7 million pounds to the end of FY28, whereupon they revert back to the previous profit-related mechanism. Turning to capital expenditure, at 30.4 million pounds, capital expenditure levels were above historic norms, as the business invested in both its new SAP S4 HANA system, and for future operational growth. It is expected that in FY26, that will be the sort of level of expenditure, but then thereafter, it will drop back down to around the 22 to 25 billion pounds as SAP, the SAP project comes to completion. Finally, onto net debt. As indicated at the start of my presentation, the business continues to generate strong cash flows and strong cash conversion, resulting in net debt falling to 105.2 million. Additionally, the business has strong core liquidity with around 141 million pounds of headroom within its core facilities and an additional unutilized 75 million euro accordion facility. So it is well placed, as well placed as it could be for both internal and external future expansion and investment. Next slide, please, Hannah. We flagged up in January that the Board intended to reinstate annual dividends and I am pleased to say that the Board is recommending a three pence per share dividend for the 2025 financial year just ended. Hopefully going forward we may become increasingly attractive as a mixed proposition share comprising capital appreciation combined with an income. As I said at the beginning of my presentation, I'm hugely optimistic for the future of the business. In the Capital Markets Day in March 2024, we set the business some challenging mid-term targets. And as you have seen today, we are either already delivering on many of them or have made significant progress to achieving the others. My personal belief is that this set of results provides a further proof point that the business is definitely on the right track. Thank you. And I'll pass back to Chris.

Thank you, Mark. So just to wrap up in terms of an outlook, we are close to the end of our first quarter. And at this stage, we have seen solid starts of the year. Our volumes are absolutely in line with where we expected them to be. And we are seeing a good success rate in recent tenders, signalling further growth coming through in our second half of this current new financial year. We are seeing great progress with our customer partnerships. That's evident in our win rates and that robust pipeline looking promising. The group will continue its mission on optimising operational delivery and efficiencies, both in our day-to-day work, but also from the work from the transformation team, the transformation programme, all supporting that mid-term ambition of 10% EBITDA. And finally, with a strong balance sheet and financial flexibility now, The leadership team are looking at options for investment to support the midterm step up in the group scale and value creation opportunity for the benefit of all current and future shareholders. So that's it on the presentation, Hannah. So we're delighted to be able to take questions.

HANNAH BROOKS- Super. And we have a number. Right, here we go. Cost pressures and margins. Are you able to add any detail as to how much of a threat to our operating margin are the cost outs demanded by customers?

Look, it is always a feature of every conversation with any retailer, right? Cost and price of product to retailers. It's not universal. We see very different conversations with different retailers. So please don't think every element of the market across all of Europe is identical. But part of our skill set, part of our capability is that ability to manipulate engineering to the benefit of both customers and ourselves. And, you know, unlike some other industries, you know, like food, for example, if you could pick up a bottle of Tesco washing up liquid and a bottle of Sainsbury's and a bottle of Asda, and they all look the same, they're all the same site bottle, they have the same colour, they are in typically entirely chemically different. Every product is typically unique. We have that ability to flex formulations. It may affect performance. It may affect viscosity. It may have less perfume, more perfume. There are always ways to manage that. And look, it's an active part of the way we operate with our customers. And they all go through phases of wanting quality. and they'll go through phases of wanting cost. And that skill set, and Mark talked about it earlier, the focus on margin management to make sure that, yes, we can move prices and costs, but we're managing our margins and maintaining our margin. And there's been a lot of talk over the years about the ability of the power of the retailers into the supply side. In the crisis that we saw with the hyperinflation three years ago now, we saw very clearly how important we are to our customers. There isn't anyone. Tesco honestly probably couldn't go anywhere else to do exactly everything we're doing. So you do have leverage. We do have arrangements with customers now for quarterly pricing reviews. It's not programmed. It's the right of both sides of the contract to ask the questions and challenge. But, yeah, it protects our margins much better than before.

And is the negative 33 million price and mix effect on revenue entirely the result of the cost outs demanded?

Not all, no. The mixed side is not. Most of the mixed effect is actually the impact of the big contract manufacturing arrangement that we have with one of the world's biggest branders, where we now 100% manufacture their bleach in the French market. Bleach is a low-priced commodity end product, but it's a stepping stone for us into a major relationship with a big brander. And the rest, yeah, it's been a price give here and there, but as you can see in the numbers, we've held our margins

for a product. We may not supply the same product as we were getting before. We say, look, if you want us to meet a price point, then we're going to re-engineer that product because we reserve the right to keep our margins. So it isn't just a like-for-like product and a reduction in the price. If there is a reduction in the price point, there is probably a reduction in the cost we put into that product. Therefore, we maintain our margins.

Okay, let's move on to cash flow and capital allocation. So you did a great job of bringing debt down. Do you foresee a decline of similar magnitude in the next period, given consensus forecasts are broadly flat, or do you have other spending plans for the free cash flow?

That's a really good question, and it's the right question. I think we focused on getting our balance sheet place, and I think we're in a good place, that has now really given us optionality. We've obviously decided as a first step to pay dividends, but our capital allocation process is quite rigorous. And people have talked about share buybacks, about, well, do you want a progressive dividend? Do you want to do M&A? So we have a rigorous process. We have plenty of ideas as to what we might do. But we also have shareholder value accretion in our minds and at any point in time we will take decisions based on what is available to us at the time. So if we carried on and did nothing we would reduce debt further but I'm not convinced that reducing debt further is the best use of our cash. There may be better uses

how opportunities come our way or don't come our way but it's a really good question well then as a natural segue um do you have a maintenance capex backlog or are you now able to fund growth capex

So I don't think we've ever really had a maintenance CapEx backlog. I think even when we constrained cash, we kept maintaining our equipment. I think it's always interesting whether CapEx is maintenance or growth because as your machines become older and you replace them, Is that in fact maintenance capex? Or when you replace them, you tend to replace them with a machine that will do things quicker or cheaper, higher volumes, and that actually gives you growth and more ability to grow volume within your businesses. Now, is that maintenance capex or is that growth capex? I think it's a little bit of both. But I don't believe our facilities are particularly starved of capex. I think they are appropriately priced. approval system to make sure that we do invest in the right things. It's not free money.

I think just to add to that, we like to have a balance in the capital. It's not all about growth for stuff beyond pure maintenance. So there's some great opportunities for efficiencies. We talked earlier about automation, end of line, removing labour from our cost structure. for pay rises, right? And they don't go on, they don't do industrial action or have accidents. So, you know, we see plenty of options and ideas coming from within the business. There are some great sources of high quality, good value capital outside of the usual channels, which we're exploring to drive real value quickly. And we've done a few this last year. We'll do more. There's absolutely opportunity to drive margin improvement from CapEx automation, as well as obviously from growth, which we will always continue to support.

Okay, just another quick one for you, probably, Mark. Can you tell us what estimate of WAC you're using to make decisions about what to do with free cash flows?

Aha, so I actually use a different methodology. work on payback and my initial starting point is to pay back on stuff having said that for the right things we will do a longer payback and for health and safety you know you've just got to do health and safety so I don't work on a whack you know I work on return on capital we've said it's over 25 percent but I also work on how quickly can we spin that cash

approach to it okay thanks um this individual's obviously seen the chaos that's been caused at the likes of m&s with their systems being hacked um are you confident that won't happen to yourselves and if so why is that the case so yeah so so um we we concentrated on the shell

So we've put a lot of money into the shell to prevent people getting into our systems. However, we switched from a prevention of attack to eventually somebody will get through. So it's not if, it's when. And if you change your attitude to, okay, somebody eventually... day to prevent it. So we spend a lot of money now on the inside of the shell as to how quickly we would detect somebody on the inside. And So, we're as confident as we can be. Until it's tested in anger, you're never 100% sure. But we have an awful lot of top expert advice. So, we do have penetration testing. We have crisis management. We have simulations. I think we're in a reasonable place.

Compulsory training is the other thing. And the biggest risk is social engineering, isn't it? And so making sure all our teams, all our interfaces with systems are up to date on their training is a key part of work we've been doing as well.

Two questions on buybacks. Are you considering them? And if not, why not?

It's part of the capital allocation consideration. At the moment, if you look at our share price, you would argue it's relatively good value and you could deliver value to shareholders by buyback. If you're not careful, that just concentrates the shareholder base even more. We did one about four years ago and it didn't desperately move the share price. We also have a number of

concentrated on paying the dividend as I say the balance sheet strength you're absolutely right gives us optionality which is a nice place to be well you raise it there the share price um question here around the frustrations that a lot of private investors feel at the the current valuation put on the business um you know why do you think you are so out of kilter from your peers

Look, it is immensely frustrating. I mean, we recognise that for all involved. I think the message we get, the story we get is, look, you know, concerns about 2022 happening again and concerns around, which, you know, I know we shouldn't say the word unprecedented. No one likes that word. But, I mean, we've never ever seen anything like that in my 11 years and in any of the history of the company before. It was all an outcome, really, of, the consequences of supply chain post-COVID being chaotic and the ability to get chemicals and prices going up crazily. But the other fear people are about is that sort of, you know, it's just going to go back to being a 3.5% to 4% business like it was for the 10 years probably running up to the COVID time. So, you know, we're super confident this business is not a EBITDA terms. We fundamentally believe the restructuring we've done, the way we've driven the organisation design, our focus in the right markets. In the five years up to COVID, this business declined its volumes every single year. In the five years since, we've grown them every single year. that's a testament to the way we now approach the customer, the way we operate with the customer. So we're firmly of the view that higher levels, sustainability levels of profits are there. The message is you've got to keep doing it to prove it. And so this is our second full year. It's two and a half years because the year before that we were coming out of the challenge and the second half was at these sorts of levels. We have got huge amounts of headroom. you know, and in the last crisis, we, you know, we, we entered that crisis, which is unprecedented. I mean, we had 200 and 260, 270 million pounds of inflation on input costs in a nine month period on a business that was making 30 million of EBITDA. You can imagine how difficult that is to sort out, but we did come through it. We've, completely changed the relationships we have with our customers. And look, you know, we can never predict whether there's going to be another macro crisis like that, but this business is an entirely different shape business and a more resilient business. And we have got, you know, as Mark showed in the headroom, you can take a shock and we might have to take a shock for a quarter, but we have a range of customers that allow us to go back and challenge on price if that's clearly evident. And, you know, we spend a lot of time on raw material prediction and you know, indices, we're using data analytics, we're using all sorts of statistical processes to try to predict the forward views on ethylene, on natural products like natural alcohol and these sorts of things. Because that's super, that's a major part of our proposition to customers is give them that insight early. So I think the business position, well, it feels like we just need to do more of it to prove, to investors that this isn't a 3% to 4% business again. And, you know, we're sitting here with our targets. We've shown them today, second year in a run. The year forward is looking very similar too. We hope to be better. And, you know, look, we're a staple product. Everybody needs toilet cleaner. They need to be able to wash their clothes. They need to clean the dishes. you know, in consumer choice of where they spend their money, we are a staple. And, you know, we're the biggest in Europe at doing it. And, you know, that sets us in a good position for the future. So, look, we're just going to do more. And that valuation will come in time. Can I just add two things to that?

I think in general, the small cap market is relatively unloved in the U.K., I think there's probably something Chris and myself can do more of. We've tended to be concentrated on institutional investors. And this is our first attempt to reach out to the retail investors. And we need to engage, I think, more with the likes of yourselves. We've probably not got our message across into the retail community yet. with investors like yourselves.

And just one last point. Although we call it fast moving consumer goods, this space is actually slow moving consumer goods. I have to tell you this. Nothing changes dramatically overnight other than that crazy raw material situation, which has never happened before. The business doesn't lop around from this to that over time. It's really steady. We can predict it pretty well going forward. So although it's FMCG and everyone gets a bit panicky and jazz hands are out about the space, it is pretty steady. We are a great customer for our raw material suppliers. We're boringly tedious at buying the same amount of hypochlorite or PVC or whatever we might be buying from our suppliers. So, you know, it is a steady, you know, solid business. It doesn't, it's not going to change overnight.

Okay. That's, Thank you. That was a really good explanation. Let's take a positive note. We've got a couple of questions here on growth. Given impressive service levels, where are the new opportunities and sort of aligned to that? Are you making any progress on discounters? Because you were a little bit sort of underweighted, should we say?

Yeah, well, I love your question. Thank you. But we're going to be positive on the growth agenda. You know, you've seen in the market data that the tailwind the industry's had for the last few years probably has steadied. There are pockets of difference within the overall market, but in general, the tailwind that we've had And the whole industry is probably steadied, it's holding at these new levels. So our growth in private label with the retailers is going to come from market share gains. I said earlier in my speech that we have made great progress in recent tenders. You know, we've done very well with one of the, you know, our number one customer is one of the worldwide branders, so discounters. and it's four letters long. That is our biggest customer. It's still no more than, it's about 11% of the group, it's multi-country, it's not one single contract. And we've just won loads more business at them as well. And they're a big partner customer for us. So we will gain share. That's the plan within our existing customer base. We don't lose customers. You tend to lose SKUs or categories or ranges. You know, we've never been kicked out really of any customer, but things move around a bit within the industry. So we're doing well, I think, in the retail, but we will just gain share. We have targeted areas, like we talked strongly about laundry. We want to be number one in the top. We're number one in the five countries, the big five countries in Europe. We're number one in three of them, probably four actually. It's just hard to prove that at the moment. But we have gap in a fifth, so we've got opportunity to grow there. And then the other side is contract manufacturing. So we have a target of 25% of our revenues get to contract manufacturing. Why? Three reasons, really. One, it's load balancing. So it means we have a regular, they're very reliable volumes in strategic long-term contract deals. It's a platform of volume through your factories, which cover overheads. Secondly, they are priced quarterly, rigorously. So it's absolute pass through and we will change the prices every month, every quarter, sorry. But thirdly, relationships with the brands are important. We learn a lot from them. We help co-invest and we co-develop sometimes with branders. And they bring standards and insights that are helpful to our business model as well. So we think there's more opportunity. Reckitts recently have sold part of their household business. We think some of that may be available for contract manufacturing in the future. We would like to think we could participate in that. And we are seeing increasingly a number of brands for peripheral operations where they don't have scale, for example, looking for outsourced partners. And we think we can grow strongly and get that ratio up in our total portfolio. So We're still very positive about growth. And, you know, as someone said, I think the question platform I talked about earlier around high quality service, high quality products, really strong service levels, good innovation, responsible development around sustainability. Factories that you can walk around and be super proud of, safe environments, you know, the platform is in good shape and customers like that.

Great. The 45 million of transformation benefits, how are they going to be distributed between each counting period? And which KPI should we be looking at to see this effect?

Yeah, so it's 50 million over the 50 million cumulative over the five years. I think we'll see another 5 million in the current financial year. So the benefit overall would be 10 million, probably five the following year, which would make it 15 million. And then 20 in the final year. So it gradually ramps up. But if you add those all up, that gets you to your 50 million. And, you know, it will come through a number of things. I mean, how do you prove that you've got an extra penny on a bottle of bleach? You know, we use a number of KPIs for your commercial excellence and the benefit we get from that. So some, You can directly measure such as overhead costs or OEE, others such as commercial excellence. How do you measure the benefit from that? It's derived from a number of KPIs, but it will come through things like margin. It'll come through operating costs and it'll come through overhead.

And what about the costs of the SAP implementation, both capital and operating? And what are the expected benefits?

So, yeah, that's a really good question. Again, The benefits are in part of the transformation and part of the transformation benefits. The overall project will be around 27 to 30 million over four or five years. In terms of the benefits, the benefits should max out around 15 million a year.

Great. Will you allow me one more question? I have passed, but we've got a few more. You mentioned record output from factories, but obviously we're seeing increasing costs in the UK from employment and obviously expensive in the EU as well. How do you allocate new business to factory? Is it purely a geographical consideration?

Yeah, so typically, are product-based. Liquid products typically don't travel very well. I mean, they do travel, but they're expensive. They're typically lower value per unit, and the freight costs are quite high as a percentage of the total cost structure, which is why our liquids factories are typically distributed around Europe to be more proximate to the end markets. So in most cases, for a liquids choice, it's obvious which factory it's going to go to. It will be the one in the local area. When it comes to unit dose and powders, We make those centrally. They do travel well. The price points are higher. And it will depend. You know, our Danish plant for dishwash challenge is eco certified. So for the eco ranges, they will typically go there. And so often it's driven by, you know, the sort of format of the product and what capability of each site is. But we do we do know the balance between the unit dose and power sites there. Less so within the liquids. There's a bit of it. For example, the German market is served by both our Polish plant in liquids, but also our Belgian plant. So there is a bit of load balancing and optimising for cost and transport between those. But typically, it's pretty straightforward where we put the product.

Right. And what are the random companies doing in terms of promotion? Where are we in that cycle?

Yeah, so if you look at the data, the price point, we look at data at a macro level across countries and by categories, pretty much across the board. The gap I mentioned in that original speech is typically branded products are twice the price of a private label. That gap has widened over the last two to three years. It's not necessarily narrowing. at all at the moment. There's some exceptions, but broadly speaking, it's not narrowing. So the price gap is as big as ever. And what we're seeing with the brands, I would say more than ever, is we're seeing probably more unadvertised, this is our perception, more promotional activity through advertising, through store placement, you know, Gondola ends, you're going to see club car type promotions, and you'll see as well sort of fixture promotion where they'll decorate shelves and have great big banners and arrows pointing at it. A little bit less on the pricing than we thought. So, you know, I think they're experimenting. You know, it's not, again, it's a very big generalisation, please. So, you know, I may be completely wrong on any particular case, but that would be the general feeling. I think the price points are not coming down on average. We see the gap held. So therefore, almost by definition, it's not price investment that we're seeing in promotion and advertising.

Well, listen, thank you. I know you've got to get off to your next meeting. So thank you very much for your time today to our audience for joining us. Apologies if we didn't get through to your question. I will try and send the extra ones over to management and we can come back to you. But that leads me to say we look forward to hearing an update in six months' time.

Great. Thanks, everyone. I appreciate it. Thank you.