McBride to cut 400 UK jobs out of 1600

McBride, which makes own label household and personal care goods for supermarkets, is cutting 400 UK jobs, a quarter of its workforce.

It said, in response to a deterioration in the retail environment in the UK, it wanted to remove unprofitable businesses and reduce capacity. It expects savings of around £12m by June 2016:

Regrettably, it is expected that, of a workforce of 1,600 in the UK business, around 400 positions are expected to be made redundant. Consultation with affected employee groups will start immediately.

It said full year revenue would fall by around 3%, as previously forecast, but growth of 2% is expected in 2015, offset by the costs of the UK restructuring. Total exceptional charges would amount to £37m in 2014 and £7m in 2015, it added.

McBride's shares have fallen 0.75p to 94.75p, and analyst Darren Shirley at Shore Capital issued a sell note:

The trends highlighted through the third quarter have broadly continued, with the UK and Italy remaining tough and more robust trading in the rest of Continental Europe, including a new business win in Germany which will benefit 2015.

Whilst trading is reported inline, as expected the group has announced a further raft of restructuring across its UK operations which will lead to a further raft of considerable exceptional costs. In the UK, around 25% of the group's workforce are expected to be made redundant, at a cash cost of £14m, with an additional £21m impairment of assets (including £6m of goodwill). In addition, management is also guiding to a £4m cost associated with the re-figuring of all its labelling due to a new European Classification and a £2.5m charge with respect to environmental remediation plan at a site in Belgium.
We currently forecast pretax profit of £20m, EPS of 8.2p, in line with consensus which management does expect to change, however we place our forecasts under review for downward revision, reflecting concerns around delivery of the required operational performance and also the treatment of exceptional costs.

Investec was more positive:

McBride's pre-close has confirmed an unchanged outlook for 2014, but also provides more detail around the company's latest rationalisation plans, which are centred on improving returns in the UK. The cash costs are not excessive and look set to yield a good and relatively quick rate of payback. As the balance sheet can comfortably accommodate these figures, we continue to forecast a maintained dividend for 2014.

And Peel Hunt said:

McBride is removing 400 jobs in the UK, and this will save £12m in a full year. This is in response to a reduction in UK revenues and should go some way to restoring margins that have been under pressure in the current year.

[The job cuts are] largely through changing shift patterns following the reduction in volumes, although some capex will be required to achieve the savings. The company has decided not to close any plants in order to retain technical expertise and capacity. This does mean there will be minimal movement of production, and this should ensure full delivery of the cost savings.