Top story

French food group Danone is to cut its product range by up to 30% in a cost-cutting effort to return to profitable growth in 2021.

The diary giant has elaborated on plans set out last month ahead of an investor meeting this morning.

It said it plans to reduce the number of SKUs it sells by between 10-30% over the course of the next year to focus on more profitable and faster growing categories.

These plans are part of a wider drive to find €1bn in cost savings by 2023, including €300m from reduced cost of goods and €700m related to general and administrative costs – representing around 20% reduction in overheads costs.

Expected savings will be partly reinvested to fuel growth opportunities and contribute to progress the profitable growth agenda of the company.

However, total one-off costs related to the new initiatives are expected to be around €1.4bn for the 2021-2023 period.

The group already laid out plans last month to reorganise its structure to more away from a category-led business to focus on more autonomous local-focussed model under five zones – Europe, Asia/Africa and Middle East, Greater China and Oceania, CIS and Turkey and Latin America.

This reorganisation will result in reductions of around 1,500 to 2,000 positions in local and global headquarters, with up to 25% of current job positions for its current global HQ.

Danone said it expects to return to profitable growth by the second half of 2021, and its recurring operating margin to be back at pre-Covid-19 levels by 2022

This morning it gave new guidance to target mid-term recurring operating margin at mid-to-high teens and to hit profitable like for like revenue growth of between 3% to 5% in the “mid term”.

Chairman and CEO Emmanuel Faber commented: “The global pandemic has accelerated a number of the patterns of the food revolution and altered others. Among the aspects that are favorable to Danone: the increased perceived relationship between health and food and notably on immunity to which fermented proteins, and probiotics participate but also the accelerated conversion to plant-based diets or the boom in e-commerce.

“Conversely, we are confronted with factors such as the closure of out-of-home channels affecting everywhere our Water business, with the reduction of SKU ranges by our retail partners, or the announced dip in birth number dynamics, but also with the elevated cost of operating with sanitary measures and the cost of securing procurement and physical flaws of our products.

“Last October 19th, we laid the ground for our plan which we have finalized and are announcing today. This transformation is necessary because we are at this stage in the paradoxical situation where on one hand, our One Planet. One Health frame of action anchored in a portfolio of healthy and sustainable products and brands is even more relevant in today’s world, but on the other hand we are unable to fully reap the benefits of the current positive trends nor face in an optimal way their challenges.

“In this reinvention of food, the most prominent paradigm accelerated by the pandemic is undoubtedly the trend toward local. It is a systemic evolution whereby the diversity of dietary habits rooted in their local cultures is now considered as a key security and resilience factor for global food systems. It is also a major political trend with the strong emergence of national food sovereignty narratives in many countries. It is finally and for long a consumer trend where many perceive local as a way to regain control over their food.”

Last month Danone said it would be exploring the possibility of asset sales, but gave no further update on any sales processes this morning.

Danone shares have opened flat at €52.52.

Morning update

Household products group McBride has issued a trading update ahead of its 2020 AGM to be held later today, with strong demand for cleaning products expected to growth revenues in the first half of the year.

It said the early part of its new financial year has experienced demand patterns similar to those seen in the COVID-19 affected last four months of the year ended 30 June 2020.

It said that changes to consumers’ behaviours seen in the earlier stages of the pandemic have largely continued with strong demand for bleach, auto-dish and surface cleaning products offset by lower demand for laundry products.

Both the Aerosols and Asia units have also experienced strong revenue growth.

Therefore, total revenues are broadly flat after the first four months and are expected to show modest growth for the first half of the year.

Earnings growth is expected to be weighted to the first half of the year, reflecting weak comparatives in the prior period and improved margins from efficiencies, lower operating costs as well as lower input costs for certain raw material and packaging items.

McBride said that while all factories are currently operating as normal and the supply chain for inbound and outbound materials is functioning well, its full year view is cautious in light of the potential for future operational challenges resulting from Covid-19, the uncertainty arising from the Brexit process and the unknown impact on consumer demand from renewed lockdowns.

Its full year outlook on trading therefore remains unchanged, with our current expectations for a modest improvement in year‑on‑year profitability.

Cake Box delivered close to flat revenues in the first half of its financial year, despite the shuttering of its entire store estate during the lockdown period.

It said it delivered a “resilient performance” in the first half of the year, with trading recovering strongly as its store estate began to reopen from mid-May.

This translated into revenue growth of 30% to £8.6m in the 20 weeks to 30 September 2020, with store like for like sales up 12.1% for the same period.

However, this strong performance was inevitably offset by the first six weeks of the period when the Group’s stores were closed due to the UK lockdown, resulting in the Group achieving revenues of £8.6m, down from £8.8m last year, and profits before tax of £1.66m compared to £1.74m last year.

Gross margin improved to 48.4%, driven by a higher proportion of sponge sales where the gross margin is 70% and a lower number of new stores where the gross margin is 25%.

After first reopening via its click and collect service, by the end of May production had resumed across all sites, where we implemented new health and safety procedures and operated with reduced staffing levels to maintain the appropriate distancing

It also launched a new home delivery proposition via Uber Eats, Just Eat and Deliveroo during the period, with an “encouraging” customer response. This helped drive online franchisee sales 51% higher than the same period last year.

It added six new franchise stores during the half year, bringing the total number of stores to 139.

Cake Box said it has a “very strong” pipeline of new franchisees, underpinning confidence that the franchise store rollout programme will return to levels seen prior to the onset of COVID-19.

CEO Sukh Chamdal commented: “We have shown considerable resilience during an unprecedented half year period and have emerged a stronger business for it. This is demonstrated by the strength of our trading momentum since reopening the business, [which] gives us confidence that the momentum in our national rollout will return to pre-COVID levels.

“This has all been the result of a monumental effort from our franchisees, who have continued to focus on giving customers the very best service, and a delicious product, in difficult times. With a strong balance sheet and unique proposition, we remain confident of making continued progress in the second half.”

Agriculture and engineering group Carr’s has announced its full year results for the year ended 29 August 2020, which demonstrated “robust performance in challenging circumstances” to exceed revised board expectations.

Revenue for the year decreased by 2.0% to £395.6m, while adjusted operating profit was down 14.2% to £16.2m.

First half trading in the Agriculture division was characterised by both challenging market conditions affecting farm incomes and continued unseasonal weather in the UK and USA.

Trading in the second half of the year recovered well, and overall profitability exceeded the board’s revised expectations for the year dropping from £14.7m to £13.4m.

As COVID-19 restrictions were tightened, the UK Agriculture businesses proved adept in maintaining supplies to farmers whilst keeping people safe.

In the supplements business, new and innovative products were launched, and expanded production and research capabilities supported our international footprint, particularly in New Zealand and Canada where feed block sales continued to build.

With the onset of COVID-19, the Group implemented a “rigorous cash forecasting process”, while cash management measures were also implemented to limit non-essential expenditure.

An interim dividend decision in April 2020 was deferred, this was subsequently confirmed and reinstated in July 2020 once the short-term impact of COVID-19 on the business became clearer.

The board has proposed a final dividend of 2.5 pence per share to add to the interim dividend of 2.25 pence per share declared in July.

Chairman Peter Page commented: “In difficult market conditions the Group delivered a robust financial performance, with full year profitability slightly ahead of the Board’s revised expectations. Across both divisions, the group responded well to managing the challenges arising from the COVID-19 pandemic.

“The global economy has been dominated by COVID-19, creating uncertainty and making forecasts difficult. Nevertheless, the Group is well positioned as the agriculture sector remains crucial in supplying raw materials and ingredients to the food chain, and our engineering businesses are predominantly involved in government funded contracts in the nuclear sector.

“Trading in the new financial year has started in line with the board’s expectations. Whilst uncertainties remain in the broader economic environment, the board is confident about the prospects of our business in the medium term.”

Finally, Hilton Food Group has announced that Robert Watson will make the planned move from executive chairman to non-executive Chairman on 1 January 2021.

This change follows the completion of the Australian joint venture transition period in which Watson “played a key role” and is as envisaged in the announcement on 23 May 2018 on his appointment as chairman.

Watson commented: “I am delighted to move into a non-executive capacity at Hilton, as planned, following the successful completion of the Australian joint venture transition.”

On the markets this morning, the FTSE 100 has started the week up 0.4% to 6,375.5pts.

Early risers include Marston’s, up 7% to 73.1p, Greencore, up 6.6% to 120.8p and Bakkavor, up 6.3% to 82.8p.

Fallers include McBride, down 4.9% to 62.6p, Science in Sport, down 2.6% to 30.2p and Naked Wines, down 1.2% to 494.1p.

This week in the City

A busy week for UK updates kicks off tomorrow with full year earnings from Greencore and Compass Group, while Cranswick and Pets at Home will post its interim earnings.

Thursday brings full year earnings from Britvic and Paypoint.

Hotel Chocolat will host its AGM on Friday and PZ Cussons on Thursday.

Internationally, Remy Cointreau will post interim earnings on Thursday.

Meanwhile, it wider retail this Friday sees the annual Black Friday shopping event.

Topics