McBride plc (MCB) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Tim Perman, and I'm the Interim Managing Director of the Liquids division. I've got a background in fast-moving consumer products and have held a variety of senior general management roles across a wide array of companies, categories and geographies. I joined McBride 6 months ago, and together with the Liquids leadership team, we've been completing this exciting strategy, and it's my real pleasure to share it with you today. Our vision for Liquids is cost leadership. It's predicated on aggressively simplifying our portfolio, freeing up production capacity and driving future growth. Liquids is very much the volume engine of the McBride Group, and we intend to use that scaled platform to expand our presence in Europe. In summary, we will simplify to grow. Now let's turn to where we are today, and let's take an external view, first of all. Household liquids is a large, stable market, worth over GBP 10 billion, with only low-level single-digit growth predicted. The main product categories are commoditized with little consumer differentiation. And although quality and service are very important, cost competitiveness is paramount. Within the McBride Group, Liquids is the largest division, generating sales in excess of GBP 380 million and GBP 15.5 million in profit. This scale has driven significant material sourcing benefits and provides a platform to extend market share. There are specific product categories and geographies where we have market share upside, and this is a real growth opportunity. However, we've been hindered by the division's complex product portfolio. Liquids has over 3,000 SKUs, over 250 different packaging formats and over 750 unique fragrances, and this drives inherent cost in the enterprise structure and impacts the bottom line. It's worth adding that this complexity has also restricted McBride's ability to be as agile and responsive as it needs to be. Overall, Liquids is part of the group that has lacked strategic focus, and this is the first time for many years that the business has been reviewed in such an extensive manner. As such, the creation of a Liquids strategy and a set of detailed plans is a major step forward. So turning to the Liquids strategy. As I said, we will simplify to grow. In essence, this is all about building a cost-effective platform and then using that to drive profitable growth for the division. The plan will see a simplified portfolio, lower operating costs and enhanced, more competitive customer proposition that would generate new business. We will maintain our focus on Europe and exploit the opportunities that exist for market share growth in key category and geography combinations. The new Liquids strategy will see better execution, better customer focus and improved levels of service. So how will we make this happen? There are 5 key, strategic initiatives with cost leadership as our North Star. Firstly, we've segmented our products and customers and will manage them in a newly prioritized product portfolio with clear operating rules. We've identified which products and which customers will win. This is a plan with discipline and focus. This will enable the unnecessary complexity in our current business to be removed and the right product offering to be delivered to our customer partners. Secondly, this simplification will enable the transformation of our cost base in factory operations. We've done extensive work to validate our savings and are confident that efficiencies will increase and costs will come out. At the same time, the necessary capacity for growth will be generated, creating higher-performing operations with longer production runs. Thirdly, we will establish the most cost-efficient overhead structure to service our more simplified business, managing our division in a much more effective way. The structure will also allow us to bring our specialist category knowledge to bear across a broad range of functional touch points. As we move forward with our strategy, we will take our customer partnerships to the next level, acting as a fast follower to brands and driving up service and customer satisfaction with a more responsive and agile approach. This will be done in conjunction with the fifth strategic initiative, which sees us reinvesting some of the cost savings into a more competitive commercial offer. This will be guided by our prioritized portfolio and particularly target those categories and geographies where there is a clear opportunity to increase market share and deliver higher sales. These strategic initiatives will deliver a number of important outcomes. Sales will grow at a compound rate of between 1% and 3% with the cost focus delivering an increase in profit margin of between 1 and 3 percentage points. The focus on simplification will see a reduction in SKU count between 20% and 30%, which will in turn help deliver cost savings of between GBP 25 million and GBP 30 million. The result will be a much more productive and profitable operating division. So look, this is a plan with very clearly defined strategic focus areas: from a product point of view, private-label cleaners and laundry liquids; from a geographic perspective, Germany, the U.K. and Southern Europe. It builds on our progress to date with Contract Manufacturing, partnering with both multinational and regional branders. And finally, it will see us selectively expand our value brands portfolio, all the while retaining our discipline and focus under our cost-leadership vision. We are really confident in our ability to deliver this exciting new strategy, and the plan has 2 critical phases to it. In the first 2 years, our focus will be on simplification. We will refine our portfolio based on extensive category and customer segmentation, reducing our SKU count. We will take out complexity, targeting those elements that generate the highest cost savings. We have a clear design in mind for improving and optimizing our overhead position. We will also build on the product sustainability initiatives already announced to provide commercial value to our customers. As we move into the second growth phase, our customer plans really kick in with full force. We will execute a more competitive pricing proposition for our key customers, accompanied by excellent quality and service. We will expand the depth of our regional presence with a new focused product offer, targeting market share expansion. This will broaden our customer base and will be combined with a continued sustainability focus. Sustainability will play an important role in our agenda, delivering, in particular, commitments around plastic packaging. We are confident that our scale and presence will allow us to do this in a cost-conscious way entirely in keeping with our divisional strategy. So that's the plan. It really is a winning formula. It's a strategy developed and designed with a single-minded focus on the customer and the market, a revitalized competitive proposition for Liquids and McBride. It leverages the most important assets of the Liquids division: our scale, our market presence and our cost-effective local asset base. The strategy also utilizes our renowned specialist expertise in household cleaning products, and it's focused, specific and disciplined. By harnessing the benefits of cost leadership with speed and excellence in execution, it will lead to much better outcomes for the division and see Liquids play a critical role in the group. So that's the Liquids strategy. It's a really exciting plan for taking the business forward, and we've already started the journey, and the team are very excited with the progress we've already made. Guided by a focus on cost leadership with profitable delivery at its heart, this is a plan we are really confident that we can deliver successfully. Thank you for your time, and now we'll take a look at the Unit Dosing division. [Presentation]

Good afternoon. My name is Lennard Markestein, and I'm the Managing Director for McBride's Unit Dose division. I'm based out of Foetz, Luxembourg. The first half of my career was in the plastics and chemical industry with emphasis on specialty materials. My earlier roles were in technology, marketing and sales, followed by general management assignments out of Europe and Asia. I joined McBride because I was inspired about the group's ambition, the team I would join, and I thought it could make a good contribution. The Unit Dosing team has already started to run the division as we speak today, and I'm happy to share our strategy for this fast-moving segment with you today. Our vision for the Unit Dosing division is a strategy based on product leadership. The Unit Dosing division is a growth business for McBride in Europe with clear potential to expand beyond as well. We will accelerate to grow. So where are we? Let's start with an external perspective. Our market is fast paced and growing. Laundry capsules grow at a relatively high pace, driven by consumers' needs for convenience, whilst the auto dishwash market is more mature, though with regular format changes as well. Large branders set the pace for innovation, with private-label producers adjusting their portfolio and following closely to answer evolving retailer needs. Maintaining our current portfolio requires manufacturers to be adaptive and to have early visibility of the changes to come. They need to do so in a cost-competitive way. Sustainability requirements are a key driver of product changes in the active product itself but also in primary and in secondary packaging. Unit Dosing products are very well suited for e-commerce, with direct delivery to customers due to their size and ease of transportation. It will be an important part of category growth going forward. McBride has a strong business in Unit Dosing products. We have a good market position in both laundry capsules as well as other dishwash with over GBP 180 million of revenue. McBride has been at the forefront of creating scale in capsule production for both Private Label and Contract Manufacturing customers. Relatively recently, our dishwash portfolio was strengthened by the acquisition of Danlind, very well known for its sustainable product offering. Our asset base is very well invested and has the capability to flex outputs. The last few years, our revenues have been steady, clearly not yet reflecting our ambition and our potential. We have a strong portfolio. However, our speed of innovation has been too slow. We were the early movers in e-commerce, and we will continue to grow here, both in laundry and in auto dishwash but as well in new products such as bottle refill capsules. Our strategy. Our ambition is to be the supplier of choice to our customers based on innovation, responsiveness, service and cost. Our strategy to realize this is called accelerate to grow. I will describe what this entails. First, we must fully transform into a specialty supplier with deep knowledge on both product and markets. Our team must be truly embedded in the industry, closely linked to both customers and suppliers. We must be an efficient innovator with urgency and ability to convert an idea into revenue. And our assets must be configured to match market needs. We need to do all of the above by maintaining cost competitiveness to effectively leveraging our scale. The question is how. A number of initiatives will deliver our strategy. Product leadership is the cornerstone. Our new product pipeline is healthy and sustainable. We will translate this into value by accelerating execution and by closer relationships with our customers during the development process. We plan to launch multiple new products in the first half of fiscal year '22. Also, our current portfolio brings opportunities to grow, supported by investments decided in prior years, which we are implementing as we speak. We will also invest in the capability and flexibility of our production assets to support delivery of new products and new packaging formats. We will actively engage with external partners to enhance our capabilities, and we will look to gain technical advantage through selective M&A. Our strategy is made long-term viable by a competitive cost position. We will realize this by eliminating ineffective portfolio complexity by investing into the right automation projects and by controlling our fixed costs as we grow our division. We will invest in selected adjacent product spaces where we can leverage our core competencies and where we can create new value such as short-cycle dishwash products and refill products. Europe is our core market, and we expand -- we aim to expand our customer base, both in Private Label as well as Contract Manufacturing. As our products are efficient to transport, this does provide a realistic opportunity to expand outside Europe. Lastly, it's very important, only our team can drive the difference. We will tailor our ways of working to our market and competitive environment. We need to operate with confidence, able to accept and manage risk in our quest for returns. Our plan should deliver sales growth between 4% to 8% per annum, strongly driven by new products. As we grow our business, this will increase the impact of both our bottom line as well as on our return on capital. I mentioned earlier that we have a strong portfolio, but that also our speed of innovation has been too slow. We will address this in multiple areas. First, new formats. The development of our new soft format dishwash product is progressing well. In capsules, we will optimize our offering with new designs. Across our categories, sustainable packaging is a consistent theme. This concerns recycled content. It concerns recyclability, the overall CO2 footprint of our offering and more. To grow, we must ensure we work from a strong core. We will actively adapt and ensure that our core portfolio maintains a good fit. This concerns the product itself but as well the cost to produce. Often, these are moderate-sized projects but with a high impact to the competitiveness of our business. For example, introducing a different packing size or tailoring the product performance. Let's now turn to actual implementation. I believe we are making a fast start, and we need to accelerate further. This, to realize growth already in the early years of our plan. The first phase of our strategy is all about this. We have developed a detailed plan to do so. We will -- we know average customers, we can and should make a difference, and we are encouraged about the growth opportunities that we see. There's clarity on which new products we will develop first. Investments in new manufacturing capabilities have been selected, and we have defined projects to take the next step in improving our cost base. The team is ready to execute. Phase 2 builds on the strengthened platform. We will invest in new capacity, revenue from adjacencies and new customers outside Europe will further drive our growth. We recognize that we're not alone in the industry. We will need to adapt along the way, make sure we don't overstretch and keep our focus. To conclude, I'm excited to lead the Unit Dosing division, and I believe we have the right plan. We will succeed in this dynamic sector through renewed strategic focus, building on a strong basis. We have staffed a specialist team that wants to make the difference. Our product plan is defined and has near-term impacts. And importantly, we have support from the group for the investments that we want to make. To close, we feel good about our product leadership strategy, and implementation is underway. The Unit Dosing division will make a key contribution to the success of the McBride Group. Our team is filled with a sense of urgency to deliver. Thank you very much, and we'll now look into the Powders division. [Presentation]

So good afternoon. My name is Henrik Aagaard, and I'm the Managing Director of our Powders division. I also have responsibility at Executive Committee for our Asia and Aerosols businesses that you have just been introduced to by Mark and Adrian. I joined McBride 3.5 years ago when McBride acquired Danlind. At that time, I've been the CEO for Danlind for more than 10 years. And Danlind was a leading Scandinavian producer of laundry powder and dishwash tablets who specialized in eco-friendly products. But half the turnover of around 60 million actually was also in Contract Manufacturing. I thought it would be a great experience for me to join McBride, McBride being the biggest and most profitable producer here in Europe, but also that I thought I could contribute with my experience being -- leading a small, agile, innovative company. So today, I'm really excited that I have the opportunity to share our vision for the Powders, and that is to build a sustainable, profitable business based on a cost-leadership model through a revitalized-to-grow strategy. So first, we'll take a look at the Powders situation as we see it today. The laundry powder market has been declining over many years. We know that from our strategy work, and we anticipate a decline also in the coming years of around 1% in private label, 4% in brands and a trend that has been declining in recent years. The decline is driven by a change in consumer behavior, moving to formats like laundry capsules, laundry liquids and also a change in dosage. Years ago, a standard dosage in powder was 110 grams, then it was more around 65. And just recently, we have seen that it's now more down to 50 grams. This means that we are creating additional free capacities in factories across Europe, adding to the excess capacity challenge. But despite all of this, I have still great belief in the powder as a concept. For consumers who want efficient and performance, the format is still the most effective way to do your laundry. We know that we are already in a very tough marketplace with fierce competition, hence price pressure, which has. Resulted in factory closures in recent years in the market. The opportunity for McBride, who is not tied to a brand or a specific market, is that this consolidation will see more branders outsource smaller competitors with exit and private-label supply concentrate to fewer suppliers. So with the right cost and quality performance, McBride can operate a profitable division in this sector. When we look internally, then we have 2 factories, and they provide a unique combination of powder production technology. The combination of fluid bed and spray tower granulation allows us to produce powders across a whole spectrum of densities and qualities, and therefore, we can be competitive in every sector of the market. And our equipment in both plants are well maintained, so we don't need any major investments in our 5-year plan. We are, today, already well positioned with regional branders and some retailers with our eco ranges, which are an increasingly more important part of the offer to consumers alongside the more traditional products. And then very important, we are known for our high customer service level. In fairness, we can say, in recent years, powders were seen as a minimized-impact category, and therefore, we have limited focus on developing this category. But our new structure will address this. Our recent financial performance has seen Powders losing money on a turnover of EUR 80 million. The closure of Barrow last year will reduce this loss level in the current year before the impact of our strategic actions, aimed to return the business to profitability. We have established a clear strategy for a sustainable and profitable Powder division, and we will be focusing on taking cost out, reformulate for lower cost, but without compromising quality and performance and hunt, in a targeted way, for additional businesses. Our approach will use the concept of revitalize to grow. We will continue to pursue cost elimination across our platform, building on the good work of the last 2 years. In such a price-competitive space, we know that cost leadership is paramount. We have to level up our technical capability after a number of years of lack of focus, ensuring market quality development skills. Effective utilization of our production capacity will improve cost recovery of our lower cost base. We have already segmented our markets and customers, and we have a clear focus on where to target in the right regions and with the right products. So we are clear on what's need to be doing to actually be delivering on our strategy. We need to drive operational efficiencies and cost savings with our -- in our plants as well as lower overheads levels. Simplifying our product portfolio will be a key part of this plan such as we can drive efficiencies from a narrower product range. We are targeting a reduction of our average conversion cost per ton of 10% to 15% over the next 2 years, adding up to 2% to our EBITA margins. We are moving fast to upgrade our technical expertise to ensure not just development of products, such as small compacted powders and further eco ranges, but a strong focus on formulation cost optimization, bringing new materials and packaging solutions forward while maintaining or improving our quality performance. We will reinvigorate our market positions, building further on our position in the private-label market with our fluid bed technology is key to cost-effective production of higher-density powders. We consider it likely that volumes for branders and professional cleaning may move to a more outsourced model in the future, and our spray technology gives us the right to be their supply partner. We will also move from a reactive to a proactive promotion of our eco credentials across our core markets, ensuring, as part of our new specialist approach to this sector that these ranges are part of our core proposition. Our planned outcome is to see some sales growth with the impact from our cost and efficiency actions, moving our trading margins up by 2% to 4%. Our plans for the next 5 years are split into a revitalize phase in the first 2 years, followed by a grow phase. Planning a simpler portfolio and segmented customers by the commercial and technical team will drive opportunity for cost efficiency in operations and overheads, adding to the momentum we have started already, adding to the benefits from the Barrow exit. Mobilizing and developing a dedicated technical group in powders is a critical success factor, and we have started that journey already. During this initial phase, we will develop and market our dedicated platform, build expertise and embed our teams in this industry more fully. In particular, this will aim to develop our specialist reputation, ensuring more eco visibility and to promotion of our credentials with branders and retailers. And from our research so far, we will aggressively target early wins ahead of our longer-term targets. And the growth outcome relates both to top line, where our ambition is for limited overall growth, but also to bottom line, where we aim to grow our profitability ratio. Our cost initiatives in the revitalize years will continue going forward as part of our cost leadership model. And driving our conversion cost down will allow us to be more competitive with effective asset utilization, winning contracts at aggressive prices but still be profitable due to our lower overhead requirements. With our rejuvenated focus on product development, we will be able more speedily and successfully to offer new and innovative formulations with the right performance, modern fragrances and the right packaging in our core markets. We aim to grow the Contract Manufacturing share of the total business to over 40% from its current 30% by capitalizing on our specialism and focus as a high-quality supply option for branders and others. So let me now explain why this strategy is credible and one that is deliverable. My dedicated team can deliver the cost platform needed to improve margins and permit competitive pricing. Just like with Aerosols, this product category has been low priority in our old model, and we have the team now in place to turn this back into a specialist-focused business. Our up-to-date market knowledge and position in key markets will permit the focus we need to optimize the use of our plants. Our unique skill of mastering both spray drying and fluid bed technology allows us to play cost effectively in both Private Label and Contract Manufacturing. I have to say, we know that it will be a lot of hard work for partners as part of the overall portfolio of the group and our first target is to reverse the loss-making position in this business and then contribute positively to the overall group performance. So for me and for the team, the strategy is crystal clear, but most importantly, I have a top motivated team behind me, and they just can't start -- can't wait to get started on delivering the strategy. So thanks for listening, and now I'll pass back to Chris.

Thanks, Henrik, Lennard and Tim, for those insights on each of your divisions. Before we move to answer questions on these divisional strategies, I'd like first to summarize what you've heard from each managing director and an overview outcome time line. As you have hopefully seen, each division has different opportunities and initiatives, challenges and improvements to deliver, all reinforcing the need for varying strategies for the different parts of this group. Hence, we will now be managed as a series of portfolio businesses each with its own identity, its own strategy, it's an operating model and its own role in the group. In terms of strategy focus, Unit Dosing and Aerosols will run with a product leadership concept, where they will generate unrivaled product expertise to deliver differentiated customer propositions at a competitive cost. Our Powders and Liquids divisions will operate to a cost leadership concept, whereby they will deliver products to acceptable quality thresholds at the lowest possible cost. Our Asia business is a hybrid, where we will deliver growth through a value and cost leadership position, ensuring it delivers on its growth potential from a mix of pure cost focus, but recognizing that some growth will also come from operating a broader value positioning in the region. Each of the divisions has its own role in our portfolio from cash generation, value optimization, growth engine or strategic upside. This will permit a targeted approach on our capital and resourcing decisions as we progress in the coming years. Shortly, Mark will outline financially how each of these divisions contributes to our overall financial ambitions of EUR 1 billion of sales, euros that is, and sustained EBITA margins of 6% to 8%. As you have seen in each of the divisional presentations, the progress of Compass over the next 5 years is broadly split into a 2-, 3-year phasing. For the first 2 years, it is very much about cost reduction and range simplification in the mature Liquids and Powders businesses. And for our growth businesses, these 2 years are needed to make the growth platforms more effective and capable, whether that's from the new facility at Asia or developing our unit-dosing ranges still further. In addition, we have an overall ambition across the group to correct overhead levels and drive early margin improvements to support those divisional activities. The second part -- period of 3 years is about leveraging these new platforms, whether that be growth in our growth businesses or limited growth and profit enhancement from our mature businesses.

Good afternoon. My name is Mark Strickland, and I'm the group's Chief Financial Officer based in Central Park, Manchester. I've been a CFO for over 25 years with a varied background ranging from chemicals through own label and contract manufacturing in the food industry to logistics and consumer services. Working both in PLC and private equity, the teams that I have worked with have always delivered positive change, including in such areas as buy and build, cost optimization and products and process simplification. I joined McBride 7 weeks ago, and I'm absolutely delighted to be joining the business at such an exciting and pivotal moment. Now moving on and looking at the business performance. As you've heard from my colleagues, McBride is now running as 5 divisions. For the year ending 30th of June 2021, we will mirror this and also report 5 segments. What you see here on the slide are the financial year 2020 results represented into the 5 segments. As you can see, this presents a very different view of the business from that historically presented. Additionally, the definition of return on capital employed, ROCE, that the group will use as a KPI will also change. It is worth pointing out that as you can see on the new basis, the ROCE to 30th of June 2020 would have been 13.6%. This is versus 16.1%, as stated in the annual reporting accounts. Under the new definition, all elements are measurable and controllable by the respective divisions, and on the slide, you can see the relative returns for each of the divisions. This change will contribute to both drive optimal divisional performance and also inform future resource allocation decisions. For completeness, the divisional split of the financial half year results to 30th of December 2020 and each of the ROCE definitions will be enclosed in the appendix to this presentation pack. The reason we haven't included exact figures for ROCE on this slide is that, obviously, we haven't run the business this way historically. Therefore, we do not have the trailing 12 months to be able to calculate it exactly. Now moving on to cost optimization. Cost optimization is the backbone of the first 2 years of our 5-year plan. As such, we are committing to deliver annualized cost savings of GBP 20 million by the end of financial year 2023. This will be delivered across a number of well-defined initiatives, including, but not limited to: reduced product complexity, which, in turn, delivers operating material cost benefits; transport and distribution optimization; process standardization and simplification; overhead reduction; and IT transformation. The new divisional structure means that over 85% of the cost is directly under the control of the divisions. Therefore, we have absolute clarity on cost and profit and loss ownership and accountability. In short, there is absolutely nowhere to hide. We have an experienced delivery team in place, and tracking is already in place with regular progress reviews. Now moving on to raw materials. This chart illustrates the cycle since 2007. Historically, our profitability has closely tracked raw material input prices. However, taking a positive view, as you can see, through these cycles, the business always recovered. That said, we are alerto to our challenges and have developed a strategy that we believe, over time, will deliver improved margins through these cycles. Whilst we will never be able to control the cycles, looking forward, we will increasingly seek to mitigate the worst consequences of them. Mitigations include, but again are not limited to, a combination of the granular business performance management, which enables timely and agile interventions. We have retained procurement and transport management as central functions. Hedging; changing the mix of contracts; a move to more contract processing, which allows price pus-through; development of new contracts; and pass-through contracts, as I've said. As I said at the beginning of this section, we believe that our strategy will enable to grow margin through these cycles. Looking now at exceptional costs and pensions. Our focus here is upon payback and cost reduction, respectively. In respect of exceptional costs, over the last few years, the company has completed a very significant footprint reset. We have closed 6 manufacturing sites over the last 5 years. Therefore, the significant historic cash costs are not expected to repeat themselves. Forwards, cost will be directly associated with incremental operational and administrative cost savings and payback. In respect to pensions, the cash flow-driven investment CDI strategy was implemented in the summer of 2019 and has more closely aligned asset and liability movement to reduce funding volatility. There is a forthcoming triennial valuation process kicking off as of March 2021. During that process, our focus will be to work together with the trustees to, number one, optimize the pension fund administration costs; and secondly, look at and implement, where beneficial, further liability management and derisk options. With regard to capital expenditure and depreciation, as you can see from the slide, the Compass strategy does not demand excessive capital expenditure. Through the plan, our capital requirements average around GBP 24 million per annum. Over the 5 years, growth CapEx roughly equals maintenance CapEx. Key strategic projects include Unit Dosing innovation, Asia expansion and IT digitization. Additionally, CapEx and depreciation are broadly matched through the plan, indicating how well invested the current estate already is. It is also worth noting that one complementary benefit of our base in Asia is that it has allowed us the access and ability to source equipment very efficiently, which results in more bang for our buck or, in other words, we are able to buy more for less in terms of machinery and production equipment sourced from Asia. Moving on to cash. The business has generated strong free cash flows historically. Further, we have and continue to demonstrate just how resilient and flexible a business McBride plc is, as we have, in COVID-19, experienced arguably the worst macroeconomic crisis in the last 100 years, yet the business has continued to generate cash. We believe that through the course of this plan, the business will continue to generate significant free cash. This confidence is helped by the fact that the business is quite lean when it comes to trade working capital requirements, which are around 12% of sales. If we now consider capital allocation. We can see from this slide that our first priority is to invest in the business to drive profitable growth, which, in turn, will drive shareholder value. We also believe that in these times of global uncertainty, it is sensible to target a net debt-to-EBITDA leverage ratio of 2x or less on an accounting basis and including IFRS 16. Below 2x, as you will see in a moment, we will -- we also believe that we should adopt a progressive distribution policy. That said, on occasions, it may be in our best interest to deviate from this policy. A good example might be where exceptional shareholder value-enhancing opportunities opportunistically present themselves through, say, a significant internal investment or external acquisition of assets. Now let's look at the group's revised dividend policy. As we stated this morning, we will move to an annual distribution, the magnitude of which will be communicated to shareholders at the end of each financial year. At the end of each year, the current and forecast 1-year forward debt-to-EBITDA ratio will be considered. If the gearing ratio is more than 2x, then there will be no distribution. Between 1.5x and 2x, a base dividend of 1/6 of earnings per share will be paid as a cash dividend. Between 1x and 1.49x, the same base dividend will be paid as a cash dividend plus an additional distribution of 1/6 of earnings per share. This additional distribution could be as a cash dividend in the form of a share buyback or even, on occasions, retained within the business. Below 1x, the company may elect to make a special distribution at the Board's discretion. It is also worth saying that the above does not preclude us from undertaking future share buyback programs should the Board feel it to be appropriate. So what does the plan actually look like? The first thing to note is that delivery of the plan is not linear. As each of the managing directors and Chris has outlined, it has a definite initial 2 years remaining 3-year split. Additionally, as you've seen from the earlier presentations, there are very different dynamics across the divisions, and as a result, we have tailored very specific strategies for each. On the left-hand side of this slide, we can see that all divisions see revenue growth but to very different degrees and, I have to stress, at very different times through their strategic development over these 5 years. On the right-hand side of the slide, we can also see that this revenue growth also flows through to margin growth, but it must be noted that this is not the key contributor in the first couple of years. In the early years of the plan, the main margin growth driver is cost optimization. You will also see that to a certain extent, the benefits of cost optimization and revenue growth are partially offset by reinvestment into the business as we look to strengthen our overall market and customer proposition for the long-term benefits of the company, be that through technical, operational or commercial investment. Moving on to the next slide. Before I go through this slide, I need to stress that the following are not formal forecasts. These are our ambitions for the company. And I reiterate that at its simplest, the plan is split 2:3 with the first 2 years being about solid platform building, and the latter 3 years are about growing the business from that solid platform. Using the 2:3 split, this slide illustrates what we might expect for the plan to deliver in terms of sales growth, and that is a CAGR percent, so 2% to 4% in years 1 to 2, 4% to 6% in years 3 to 5. In terms of EBITDA percentage, high single in years 1 to 2 and low double in years 3 to 5. Adjusted PBT growth, 25% to 35% in years 1 to 2 and 40% to 50% for years 3 to 5; ROCE growth, 2% to 3% for years 1 to 2 and 3% to 4% for years 3 to 5. Obviously, when setting out upon such an ambitious strategy, it is important that we're able to track our progress. So in terms of outlook and measuring the progress, we intend to do this in terms of revenue growth. As you've heard, we've set a target of EUR 1 billion. As you can -- seen also, all divisions contribute to that revenue growth. Contract manufacture, Germany and the rest of the world private-label markets are key to this growth. Cost savings. We have set ourselves a target of GBP 20 million annualized savings by the end of FY '23. This should also result in favorable trends in cost ratios, for example, overheads per pound of turnover, cost per unit of product, et cetera. Margin advances. We will drive to deliver above-sector average margins. We believe that EBITA margins of 6% to 8% are achievable. Free cash flow. We are targeting sustained, strong cash flow over the long term. We are keeping a focus on maintaining balance sheet flexibility, and we have spoken about delivering a net debt-to-underlying EBITDA leverage of sub 2x. Improvements in our return on capital employed. We wish to maximize the use of and return on the capital available. To ensure divisional focus, we have implemented a new definition, and the ROCE we now measure is absolutely controllable by and measured within each individual division. We are targeting the high teens in percentage terms. Thank you for your time, and I'll now pass you across to Chris, who will summarize the key events of the afternoon.

Thanks, Mark. So to finish off, and in summary, this Compass strategy will create the platform to exploit the opportunities in front of us and delivering enduring, sustainable profitability for the future, driving shareholder value. There are 5 words that I hope you have heard throughout this presentation that are pivotal in explaining why the strategy will make a difference. First word is focus. Our strategy is the sum of 5 focused strategies. Our teams in our new divisional structures will focus on upside from opportunity priorities and will drive their own strategies and portfolio roles. Secondly, execution. These new teams operating across Europe will ensure we improve our execution success on our critical tasks and priorities in division, in central and for the group as a whole. Thirdly, specialism. These new structures will rekindle our specialisms for the decentralization of the operating model, allowing resource to target their opportunities and enhance our specialist reputation still further in the market. Fourth, speed. Our local teams in each of those divisions will drive critical factors that make a difference in the eyes of the customer, more rapid responses to new ideas, options for change and responsiveness to opportunities and threats. And finally, scale. As the #1 player in this segment, our scale matters. We will ensure we leverage this skill further. All this, of course, is part of our ambition to drive and improve the financial outcome for this group and to sustain its future. For the first time in many years, we will grow this business. We will drive cost optimization, improving margins. Our new approach to performance management through accountable divisions will improve -- will drive improved margin stability. We will see better capital returns because we'll have clear choices on how we allocate our capital. And with these fundamentals addressed, we can improve both our financial performance and drive improved shareholder value. So why will it be different this time? And what are the reasons to believe? Our strategy process has been the most robust in many years. Our assessment and quantification of opportunities, cost or revenue related, are backed by extensive market studies and benchmarks. We know these upfront as we launch. We have a deeper understanding of our competitive position, allowing us to be targeted and focused in our growth and cost ambitions. The new organizations will mean we get the best from our teams. We have addressed the organizational structure that has hindered our progress so much in the past and reset it, aligned to the growth opportunities. We have proven examples from our Asia and Aerosols businesses that autonomous divisional structures perform. Our teams will have clarity on their ambitions and targets and the autonomy to act to drive their profit and loss account and improve capital efficiency under this model. We've introduced a much broader senior management structure and recruited new talent to complement the existing experienced team to deliver this strategy. This new approach will improve our customer proposition. Our new teams will improve the crucial [ hygiene ] factors of dependability around service, quality and reliability. The structure will rekindle a specialism so necessary we provide -- to provide improved performance through all our customer base. We will have a clear, segmented value proposition for our customers, allowing us to provide value-for-money quality products to every segment. Most importantly, customers will retain all the range options they have today but from a stronger, more resilient, one McBride. Over the past 5 years, we have performed well compared to most of our competition, and we definitely have the opportunity to outperform and outlast the main tier 1 and 2-tier competitors. And compared to 5 years ago, the group is decluttered. We have sold or closed 6 factories following the exit of Personal Care and Skincare and capacity reduction in our Powders and Aerosols businesses. Today, our overall platform is well set. We have no major operational restructuring or major reset needed to get this strategy going. This management team and myself will make sure we learn from the challenges of the past and have checks and balances to ensure we continuously improve. Our ambition from this reset of strategy and organization is, of course, to create sustained and enduring value creation for our shareholders, colleagues and customers. As a reminder of our investment proposition, we are the #1 player in European private-label household with a diverse customer and geographic reach. Our markets are set to grow overall with private label expected to see share growth. We will pursue significant cost-optimization opportunities. Our strategy research provides clear targets and understanding of where revenue growth is possible. We have clear plans in certain divisions of how we can diversify our revenue growth in regions and in channels. This strategy will have a cost-aware ESG ambition, active through the divisions and the whole group and where our scale can provide competitive advantage. We have a strong and highly effective technical team that can drive innovation in a focused and targeted way to drive differentiation. As we look forward, we do not see this business having the need for significant additional capital or exceptional charges, and our financials are solid and will allow this plan to deliver, and we compare very favorably financially to most of our competition. This new approach, building on our solid platform, ensures we are in a prime position to exploit the opportunities in front of us and deliver on our value upside.