ABF buys UK milk records firm for £48m

Top story

Associated British Foods has announced it will bolt National Milk Records on to its AB Agri arm after agreeing a £48m deal to acquire the UK company.

ABF will pay 215p per share for the dairy data firm, which represents a premium of 87% to its most recent closing price of 115p on 5 June.

The group said NMR’s business was well aligned with AB Agri’s objective of supporting customers across the dairy industry, helping to drive efficiency and increase productivity.

NMR, it said, provided “complementary services and technology offerings to AB Agri’s existing operations across the dairy supply chain, and AB Agri believes that a combination will enable a better service to the dairy industry, initially in the UK, offering products that deliver increased value, efficiency and ultimately profitability for farmers”.

“AB Agri is excited about NMR becoming part of the broader group and believes that the acquisition will allow NMR to accelerate and de-risk the delivery of its strategy, as well as creating greater opportunities for NMR’s customers, employees and wider stakeholders,” it stated.

The NMR directors, who have been advised by Canaccord Genuity, believe that the offer is in the best interests of shareholders and intend to recommend the transaction unanimously.

The deal is currently expected to complete during the third quarter, subject to the satisfaction of various steps.

Commenting on today’s announcement, José Nobre, CEO of AB Agri, said: “NMR is a high-quality business which is extremely complementary and additive to our dairy strategy and offering to the dairy industry.

“We have supported dairy farmers for more than 30 years with nutrition and specialty feed products, and more recently with data and technology platforms which deliver insights that create continuous improvement in agricultural supply chains.

“Acquiring NMR is an extension of this strategy and will enable us to service the industry better, offering products that deliver increased value, efficiency and ultimately profitability for dairy farmers. NMR has assembled a strong team and we are excited by the prospect of working together with them to accelerate the development of the business.”

Trevor Lloyd, chairman of NMR, added: “ABF and AB Agri’s status within the UK agricultural sector and expertise in the dairy industry will provide a significant benefit to NMR’s customers. As the UK dairy supply chain continues its drive to carbon neutrality, NMR’s work with GenoCells and milk data, and our pivotal role in payment testing, will contribute important information to aid in this transition.

“The backing of ABF will accelerate and de-risk NMR’s ability to deliver its strategic objectives, streamlining industry processes by creating a holistic business that can provide end-to-end data and analysis to ensure the long term sustainability, efficiency and profitability of UK dairy.”

ABF shares have edged down 0.1% today to 1,839.8pts.

Morning update

Three bank holidays failed to raise UK retail sales in May, according to the BRC-KPMG Retail Sales Monitor, as growth slipped to 3.9% during the month compared with a three-month average growth rate of 4.7%.

UK like-for-like retail sales increased by 3.7% in May, against a decline of 1.5% in May 2022. However, this was below the three-month average growth of 4.6%.

Food sales remained strong, increasing 9.6% on a total basis and 9.8% on a like-for-like basis over the three months to May, largely driven by pricing inflation.

But non-food sales increased just 0.7% on a total basis and 0.5% on a like-for-like basis over the three-months to May.

Over the three months to May, in-store non-food sales increased 2.9%, while online non-food sales decreased by 3.0% in May.

British Retail Consortium CEO Helen Dickinson commented: “The trio of bank holidays failed to get shoppers spending as sales growth slowed to its lowest level in six months. While food sales got a boost from the Coronation weekend, this was not sustained for the rest of the month.

“Meanwhile, growth in discretionary spend continued to tumble as the high cost of living squeezed households. There was cause for some optimism, however, as brighter weather at the end of the month led to a much-needed pick-up in summer fashion sales, as well as gardening and DIY products.

“With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months. But, with signs that inflation has possibly peaked, retailers are hopeful that confidence will continue to improve.

“Now is not the time for government to impose more regulation and tax on business that will push up costs for retailers and prices for their customers.”

Paul Martin, UK head of retail at KPMG, added: “Despite warmer weather, a national celebration and month of bank holidays, retailers saw pretty mild growth in May with sales figures up just 3.9% on last year, and lower than the 5% growth seen in April.

“High street retailers saw more categories slip into negative sales territory last month, with health, beauty and food driving sales on the high street. The gloom continued for online retailers with just four categories registering positive sales figures and total sales down by 3%. Online penetration rates continued to slide, sitting at 36%, as consumers return to bargain hunting in store.

“Retailers will be hoping that inflation levels in the wider economy continue to move in the right direction in order to boost much-needed consumer confidence. The wild card for the retail sector remains uncontrollable food inflation, which shows little sign of coming down in the near future, and this is having a significant knock-on effect on non-essential spending.

“The grocery sector is the fastest growing part of the consumer wallet at the moment, so consumers are having to spend more of their money in the one area that is getting disproportionately more expensive.

“UK consumers are resilient, but with stubbornly high food inflation continuing and the prospect of further interest rate rises threatening to impact their ability to spend elsewhere, it is likely to be a long, hot summer for the retail sector.”

Susan Barratt, CEO of IGD, on the grocery sector said: “May’s food and drink sales again saw strong value growth, with double-digit inflation driving sales consistently over the four-week period. Volume sales were marginally negative, even with a brief uptick from the events surrounding the coronation of King Charles.

“Despite food price inflation reaching its highest level for 45 years in the first quarter of 2023, shoppers overall seem slightly less fearful about how high prices will go. Although three-quarters (75%) expect food prices to get more expensive in the year ahead, this is actually the lowest level since July 2021. At the same time, the number of shoppers expecting to be better off financially in the year ahead has risen, up from 14% this time last year to 18%.”

Meanwhile, consumer card spending grew just 3.6% year-on-year in May – less than half the latest UK inflation rate of 7.8% and lower than April (4.3%) – as Brits cut back on discretionary purchases to cope with mounting inflation and food prices.

Barclaycard found that spending on groceries surged 8.9% year-on-year – the highest growth in the category in over two years. Aside from the near-record rate of food price inflation, grocery spend also received a boost from the coronation bank holiday weekend and Eurovision.

Spend on fuel saw its third consecutive month of decline in May (–10.7% year on year), largely thanks to the drop in prices against May 2022, when they were much higher due to the Russian invasion of Ukraine.

Amid ongoing concerns around rising food prices (88%), two thirds (65%) of shoppers have noticed that some products are now being sold in smaller package or portion sizes, yet cost the same or more than they used to – otherwise known as “shrinkflation” – and the majority (83%) are concerned about the impact of this growing trend.

Meanwhile, more than six in 10 (63%) say they are looking for ways to reduce the cost of their weekly shop. Two fifths (41%) of these budget-conscious Brits are using vouchers or loyalty points to get money off shopping, and over a quarter (27%) are buying more frozen food to minimise waste.

Spending on non-essential items increased just 3% this month – less than in April (4.6%) – as half (50%) of consumers say they are cutting down on discretionary spending to cope with rising household bills.

Despite persistent cost of living pressures, consumers are generally feeling confident in their household finances (64%) and ability to live within their means each month (68%). Meanwhile, confidence in the future of the UK economy has slightly increased, rising from 25% to 28%.

Esme Harwood, director at Barclays, said: “Consumers are still paying close attention to their everyday spending, and we are seeing growing concerns around “shrinkflation” in the weekly shop.

“Many are having to forgo discretionary purchases to offset rising food prices, with clothing and restaurants most impacted.

“However, the growth witnessed at pubs, airlines and entertainment venues shows that Brits are still finding room in the budget to enjoy nights out and holidays.”

Silvia Ardagna, head of European economics research at Barclays, said: “Although the latest headline figures show that inflation has fallen due to lower energy prices, the prices of core services and goods remain stubbornly high and continue to constrain real household disposable income and spending.

“The UK economy has escaped a technical recession for now, but the forward-looking outlook remains one in which the economy is likely to stagnate as the impact of monetary tightening will more than offset the relief from lower energy prices.”

In company news, Poundland owner Pepco Group continued to make “excellent progress” in the first half of its financial year, with strong double-digit like-for-like revenue growth.

Total group like-for-like revenues were up 11.1% in the six months to 31 March, with headline revenues up 22.8% to €2.8bn.

Strong sales growth was driven by a good Christmas peak trading, with LFL growth of 13% in the first quarter followed by a resilient second quarter.

Pepco branded stores saw like-for-like growth of 15.8% in the period, while Poundland was up a more modest 4.9%.

At Poundland in the UK, chilled and frozen ranges continue to see strong demand as customers use frozen food to cut food waste.

Poundland remains on target to open and relocate 50 new stores during 2023 across a wide range of locations in UK high streets, shopping centres and retail parks.

It said the group continued to invest in prices against an inflationary cost backdrop and currency headwinds, which resulted in gross margin declining 0.9ppts to 40.1% in the first half.

This is anticipated to be a trough in gross margin performance, with a recovery expected in the second half.

Operating costs have been a key focus and have been managed closely across the half with only a marginal increase in the underlying operating cost (excluding depreciation and lease costs) margin rate of 0.5 percentage points.

Therefore, first half underlying EBITDA remained up 11% at €377m on a constant currency basis, driven by continued revenue growth in the Pepco segment, both like-for-like and new stores.

Underlying profit before tax of €134m reflects a decline of 5.7% on a constant currency basis versus last year, driven by accelerated capital investment in store expansion, which resulted in higher operating costs and growth-related depreciation, coupled with higher interest charges.

Looking ahead, the group said that, while it expects the macro backdrop to continue to be challenging, it remains confident in making further strategic progress.

“We are well positioned to meet store opening targets, drive returns through our new look refit programme and attract new customers to our brands, while keeping a disciplined focus on costs,” it stated.

CEO Trevor Masters said: “The group continued to make strong progress against our strategic objectives over the half year, while delivering an increase in revenues and underlying EBITDA.

“Our growth strategy in western Europe is progressing well, reflecting the strong appeal of the Pepco brand to customers across the whole continent. Italy, where we recently opened our 100th store, and Spain – which is benefiting from our combined clothing, general merchandise and fmcg offer – continue to be our largest and fastest-growing western European territories. In May, we were delighted to launch the Pepco brand in Portugal.

“As we highlighted previously, inflation remains at elevated levels in central Europe, against which trading in Pepco stores has remained challenging during the third quarter to date. Despite this, we have continued to do the right thing for customers on a budget by maintaining our price leadership and growing our market share, while focusing on the cost of doing business in these inflationary times.

“We remain well positioned and in the second half will see gross margins trending upwards, as we benefit from the tailwinds on certain input costs, including commodity and freight. We are focused on executing our strategy and remain on track to deliver full-year EBITDA growth in line with previous guidance. I would like to recognise our colleagues and suppliers across the business and thank them for their hard work and commitment to serving our customers.”

Finally this morning, British American Tobacco has issued a pre-close trading update ahead of the end of its first half on 26 June.

It said it had seen “sharpening execution in combustibles and the US” in the period.

Group cigarette volume share is up 10bps and value share down 40 bps, mainly due to the implementation of commercial plans in the US.

Outside the US, it said it has been performing well with reinvigorated portfolios, refreshed brands and sharpened execution supported by optimised pricing offset by some geographic mix.

The US industry premium segment shows early signs of stabilisation with premium volume share sequentially growing since the start of the year

In non-combustibles, Vuse’s value share was up 2.8 ppts, reaching 38.8% in key vapour markets, driven by extended volume and value share US leadership.

Glo saw performance improvement after a disappointing Q1, with category volume share down 1.1 ppts to 18.2% in key markets.

Velo remains modern oral volume share leader in 15 European markets, with volume share of total oral up 80bps.

For the rest of the year, global tobacco industry volume expected to be down 3%.

BAT expects 3%-5% organic constant currency revenue growth, with performance expected to be weighted to the second half and strong new category revenue growth.

CEO Tadeu Marroco said: “I am clear that the strategy we created in 2019 is right. I am confident that we can execute it successfully.

“Our commitment to building A Better Tomorrow, by reducing the health impact of our business through a multi-category portfolio of reduced-risk products remains. Put simply, smokers must have access to better choices. This is already a reality for smokers who have made the switch to our reduced-risk products. It also represents a commitment to our consumers who continue to smoke and are yet to make that transition.

“We have reached a point in our transformation where sharper execution and greater emphasis on fewer, bigger priorities that deliver meaningful returns is required. We will use our market archetype model, which identifies different stages of new category maturity to guide us, ensuring our priorities deliver on our strategy and are well articulated with clear business outcomes defined.

“2023 is going to be complex and exciting in equal measure. BAT has a wonderful heritage. I am committed to building a new, modern BAT – one that is agile and progressive, inclusive and collaborative. It is our exceptionally talented people, our pipeline of innovation and portfolio of winning brands, that will ensure we perform and transform simultaneously. I have great confidence this can be achieved.”

On the markets this morning, the FTSE 100 has edged back another 0.2% to 7,586.9pts.

Risers include McBride, up 3.8% to 30.1p, PZ Cussons, up 2.1% to 194.2p and Bakkavor, up 1.6% to 93.5p.

Fallers include Just Eat Takeaway.com, down 2.6% to 1,186p, Kerry Group, down 1.6% to €91.18 and Greencore, down 0.8% to 79.6p.

Yesterday in the City

The FTSE 100 started the week edging down 0.1% to close at 7,600pts.

Diageo was down 1.2% to 3,332p after it installed in-coming CEO Debra Crew a month early due to the illness of outgoing CEO Ivan Menezes.

Other fallers included McBride, down 4.3% to 29p, Ocado, down 4.1% to 343p, Bakkavor, down 2.8% to 92p, WH Smith, down 2.4% to 1,604p, Greencore, down 2.3% to 80.3p, Deliveroo, down 2.2% to 102.7p and Nichols, down 1.6% to 970p.

Risers include Wynnstay, up 2.3% to 440p, Glanbia, up 2.1% to €13.62, PayPoint, up 2% to 410p, Hotel Chocolat, up 1.6% to 160p, AG Barr, up 1.6% to 515p, Just Eat Takeaway, up 1.3% to 1,217p and Marks & Spencer, up 1% to 187.9p.