McBride gives profits warning six months after flotation

MAGNUS GRIMOND

McBride, the own-label detergents group chaired by Grand Metropolitan's Lord Sheppard, shocked the stock market yesterday after issuing a profits warning just six months after its flotation. The shares tumbled 37p to 148p when the company warned that production problems and higher raw material costs would hit profits this year.

Brokers cut their forecasts from between pounds 30m and pounds 40m to around pounds 24m after the announcement and said that sentiment would be affected.

Richard Allan of Kleinwort Benson described the news as "a substantial disappointment. I think it will take some time for management to rebuild credibility generally". However, he said most of the problems appeared to be behind the company, which was now enjoying double-digit volume growth.

McBride said abnormal costs of up to pounds 4.5m had been incurred in the first half, while margins for the year would be down by between 0.5 and 1.0 per cent. The squeeze came following the steep and rapid rises in raw material and packaging costs which started late in 1994. The company had predicted a slowdown in the cost increases, which, when combined with selective price increases, had been expected to restore margins during the first quarter of this financial year. In fact, although the slowdown in cost inflation had occurred, it had been delayed into the second quarter and margins were squeezed for most of the first half as a result.

McBride estimated that the net effect of the raw material and packaging cost increases would hit margins to the tune of between a half and one percent for the year as a whole.

On top of that, the company was hit by production problems with new products made at its textile-powder plant at Barrow and a major capital project at Middleton. McBride makes Safeway's new Cyclon own-label detergent and Sainsbury's Novon 2000, an upgrade of its existing washing powder, both of which were launched in the autumn. Together, the problems gave rise to a number of abnormal production costs and lost margin that, with associated additional costs, amounted to between pounds 4.0m and pounds 4.5m, which will impact the first half figures. However, the plant is nowoperating at full production.

The company, which was a pounds 275m management buy-out from BP in May 1993, came to the market last year 188p a share, valuing the company at pounds 329m. Last October the company warned that costs were putting pressure on margins.