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Divisional performancecontinuedCentral and Eastern Europebusiness reviewGrzegorz (Greg) KrolCentral and EasternEurope DivisionalManaging Director2011 2010 ChangeTotal reported revenue (1) £139.7m £118.4m + 18%Adjusted operating profit (2) £8.9m £8.9m 0%Average employee numbers 883 663 +33%Proportion of revenuein Household products 84% 89% –5pptProportion of revenuein Personal Care products 16% 11% +5ppt(1)Revenue by origin. 2010 restated to reflect internal reorganisation of the managementstructure which has resulted in responsibility for operations in Luxembourg and Germanybeing transferred from Western Continental Europe division.(2)Adjusting items include amortisation of intangible assets, exceptional items, changesin estimates of contingent consideration arising on business combinations, and anynon-cash financing costs from unwind of discount on initial recognition of contingentconsideration and any related tax.> 20% sales growth on constant currency basis, of which14% was organic growth and 6% acquisitions> Successful acquisition and integration of the Brno-basedSkincare facility into McBride Central and Eastern Europe> Business restructured and strengthened with commercialresponsibility for operations in Luxembourg and Germanyintegrated within the Central and Eastern Europe division> Adjusted operating profit (2) in line with prior years despiteraw material input cost pressures> Continued development of Eastern and Southern areasof regionBusiness descriptionThe Central and Eastern Europe business creates, develops andproduces Household and Personal Care products for major retailersin Germany, Austria, Switzerland, Poland, Hungary, the CzechRepublic, Slovakia and Southern and Eastern Europe. Retailcustomers in the region include Aldi, Biedronka (Jeronimo Martins),Edeka, Schwarz Group (Kaufland and Lidl), Metro (Makro and Real),Carrefour and Tesco.OverviewThe Central and Eastern Europe business has benefited fromstrong Private Label growth in the region and the integrationof the Luxembourg and German operations into the division.Many of Germany’s leading grocery, discount and drugstorechains are expanding their operations into Central, Southernand Eastern Europe. The combination of the business units willprovide for greater co-operation and opportunities for PrivateLabel development with these large and important customers.Sales for the enlarged division grew 20% on a constant currencybasis, with organic growth contributing 14% and acquisitionscontributing 6%. The business delivered a robust performance,with adjusted operating profit (2) in line with the prior year however,operating margin fell from 7.5% to 6.4% due to higher raw materialinput costs. At the start of the financial year the Group acquired adedicated Personal Care manufacturing facility in Brno in the CzechRepublic. The factory specialises in Skincare ranges and during theyear a number of innovative Skincare concepts were developed andlaunched at the Private Label Manufacturer’s Association (PLMA)exhibition held in Amsterdam in May 2011.MarketsHousehold and Personal Care markets in Central and Eastern Europedemonstrated a recovery from the economic slowdown withconsumer spending in some markets returning to pre-crisis levels;however a number of the former CIS and Baltic states still remainweak. The rapid expansion of modern retail supermarkets,hypermarkets and discount formats in the region is increasing thepopularity of these channels as the preferred choice for Householdand Personal Care products, and confidence of consumers in PrivateLabel products has increased greatly. In Germany, Private LabelHousehold product sales increased to 41% volume share (2010: 40%)in the period to June 2011.Retail Private Label sales continue to grow strongly in EasternEurope, with retailers such as Biedronka in Poland, the drugstorechains DM and Rossman and hard discounters Aldi, Lidl and Kauflandall continuing to expand their operations in the region. Euromonitorreported that in Eastern Europe, Private Label Household productsgrew by 9% in 2010 whilst the overall market was flat.Key business developmentsIn 2011, the Central and Eastern European division was expandedsignificantly with the integration of the Luxembourg and Germanoperations. In addition, the acquisition of the Brno factory providedthe business with not only a dedicated Personal Care factory in theregion but also a Centre of Excellence for the production of Skincareproducts for the Group. The business has further strengthenedits management capability in the region to support this enlargedbusiness unit. The German market is now McBride’s fourth largestPrivate Label market after the UK, France and Italy with Polandnow our seventh largest market. Sales to Germany, Austria andSwitzerland were 28% higher due to the full year impact of contractsgained in 2010. Sales in Poland increased 6% driven by the increasingshare of the market held by modern distribution channels. Salesto export markets in the region increased 66% with sales to theBaltic States and Russia recovering strongly.ProductsThe acquisition of the Brno facility provides the division with a facilitycapable of manufacturing higher value Personal Care products suchas facial, anti-ageing and men’s Skincare ranges. Personal Careproducts now account for 16% of revenues compared with 11% in2010. McBride has continued to develop products for key customersin Poland, extending the Private Label categories through productinnovation and category management expertise.McBride has won significant business for scouring cream andall-purpose cleaners sourced from the Strzelce factory in Polandfor the German market. In 2011, the business also gained a significantair freshener contract in Germany with the first pump-based airfreshener to be produced in Strzelce.Financial reviewReported Central and Eastern Europe revenue increased 18% to£139.7 million (2010 restated: £118.4m), of which 14% was organicgrowth, offset by 2% fall due to currency translation and 6% growtharising from the acquisition of Dermacol a.s. in the Czech Republic.Sales to Poland, the Czech Republic, Germany and Southern Europeprovided the main sources of growth. Adjusted operating profit (2)at £8.9 million, (2010 restated: £8.9m), was a strong performancewith return on sales down from 7.5% to 6.4%. The main drivers of thiswere higher input costs and product mix. Capital expenditure was£2.5 million (2010 restated: £2.9m) and was mainly focused oncapacity expansion and cost-saving investments.Future developmentsThe market dynamics in the region remain strong, with furtherplanned store openings in the region by both national andmultinational retailers. Most of our customers in the region arecontinuing to expand and develop their Private Label offer withinMcBride core categories. The market for Private Label Personal Careproducts is growing rapidly in Central and Eastern Europe followingthe dynamic set by the Household product category. The businessbelieves that it is well placed to take advantage of the increasingdemand for Private Label Household and Personal Care productsacross Central and Eastern Europe.Further resources in new product development programme in theregion will focus on developing and improving the Private Label offerin those categories with the greatest growth and margin potential.Overview Business review Governance Financials Shareholder information44 McBride plc Annual Report and Accounts 2011 McBride plc Annual Report and Accounts 2011 45