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Private label household goods manufacturer McBride has downgraded earnings expectations due to “very significant” inflationary pressures outpacing its price increases.
Updating the market ahead of the close of the first half of its financial year to 31 December 2021, McBride said raw material and packaging costs have continued to rapidly increase since October, with availability continuing to impact its supply chain efficiency.
The group said it has engaged with all its customers to secure “substantial” price increases to mitigate the impact of these exceptional cost rises affecting the whole industry.
However, early increases in late summer have now been outpaced by further rises in input costs and hence further pricing action has been underway more recently.
“It is pleasing to see the support of most customers to these price increase requests with the effect of these further increases starting to benefit December trading and delivering more fully from January onwards,” it stated.
However, because of the delay in mitigating current input cost inflation with pricing, the group has downgraded its first half profit expectations again.
It now expects to report an adjusted loss before interest, tax and amortisation of between £14m and £17m for the six months ended 31 December 2021.
It said uncertainty remained as a result of pricing delays with a small number of customers and the resultant implications, which could impact short term volumes.
McBride said it continues to enjoy a strong liquidity position with around £80m in available cash at hand, and we are currently in supportive and constructive discussions with our bankers regarding its December covenants.
McBride shares have opened down 10.5% to 53p.
Morning update
Domino’s Pizza Group has reached a new agreement with franchisees that will see cash invested in digital growth and a commitment to hasten the speed of store openings.
DPG said the agreement, which will run for three years, will boost its own and franchisees’ long-term growth and profitability stand to improve with increased system sales and more new store openings and a more collaborative and growth-oriented environment.
The agreement is driven by recognition that in recent years DPG has lagged comparable Domino’s businesses around the world.
The agreement will see a one-time capital investment of approximately £20m, spread over three years, in digital acceleration, personalisation, ecommerce app development and in-store innovation to enhance the customer experience and drive top-line growth.
The investment will see increased marketing investment, an enhanced food rebate mechanism for franchisees to encourage order growth and improved new store incentive scheme to encourage and accelerate new store openings.
Meanwhile, franchisees will commit to an enhanced schedule of new store openings, equating to at least 45 new stores to be opened per annum over the next three years, significantly ahead of levels achieved in previous years.
They will also commit to participate in new national promotional deals focused on both delivery and collection, and to prioritise, test, and roll-out new technology and product innovation (such as GPS tracking) and to test new store formats.
Domino’s said that over 99% of UK stores voting in favour of the Resolution.
More generally DPG expects results for its 2021 to be in line with expectations.
In 2022, DPG expects an acceleration in system sales growth (excluding the benefit of the reduced rate of VAT), largely driven by increased store openings and an acceleration in like for like growth due to the operating and capital investments associated with the new agreement.
Despite the investments associated with the resolution, the Company expects 2022 underlying EBITDA to be in line with current market expectations.
The company is also increasing its medium-term expectations and now expects to achieve at least the upper end of the previously announced targets of £1.6bn - £1.9bn of system sales and exceed the medium-term target of 200 new stores.
CEO Dominic Paul commented: “This is an important moment for Domino’s, and I’m delighted we have reached what is truly a great resolution with our franchisees.
“We saw first-hand through the pandemic how, when we work together, we win together. I firmly believe that the resolution we have reached is a good one for franchisees, our people, and our shareholders. It means that our interests are aligned, and we are now in an even stronger position to execute our strategic plan. Our franchisees are truly world-class, and we are looking forward to accelerating our growth together.
“Our business continues to perform strongly, and we are looking to the future with confidence. Combined with our new strategic plan which is focused on accelerating our growth in both delivery and collection, the resolution we are announcing today can unleash the power of the Domino’s brand, and enable us to deliver long-term, sustainable growth which will benefit all our stakeholders.”
Elsewhere, Marks & Spencer announced yesterday it has agreed a new sustainable finance-focussed funding package.
It has agreed a new £850m revolving credit facility linked to the delivery of its net zero scope 3 target by 2040
Under the terms of its new credit facility, which runs until June 2025 and replacing its existing facility due to mature in April 2023, M&S will benefit from a lower interest rate if it delivers targets aligned to its net zero roadmap.
The designated metrics span the M&S value supply chain to support its scope 3 net zero goal.
M&S worked with BNP Paribas as its sustainability coordinator.
M&S group treasurer James Rudolph said: “This is a first for M&S and brings to life the role finance plays in the move to a more sustainable, lower carbon economy. Put simply, sustainability linked loans like our new credit facility, are designed to reward borrowers for delivering measurable improvements in environmental impact.
“This is just the first step in moving towards a more sustainable financing framework and, as a function that influences every part of the business, I look forward to the meaningful role finance can play in making net zero a reality.
“M&S has been built on a belief that doing right by the planet is not just good citizenship, it’s good business and by putting Plan A at the heart of our financing and investment decisions we can build an M&S that is more resilient and efficient as part of a sustainable future.”
On the markets this morning, the FTSE 100 is back up 1% to 7,245.1pts.
Domino’s Pizza Group has surged 23% to 425.4p on the new franchisee agreement, while THG is up 6% to 177.2p and Just Eat Takeaway.com is up 4.6% to 4,084.5p.
Along with McBride, fallers include B&M European Value Retail, down 2.6% to 614.6p, Science in Sportm down 2.4% to 60p and AG Barr, down 1.6% to 508p.
Yesterday in the City
The FTSE 100 fell back for its sixth consecutive day, dropping 0.7% to close at 7,170.8pts yesterday.
Ocado fell back 2.6% to 1,635p after its strong rise due to winning a crucial legal case on Tuesday.
Food to go and leisure stocks were hit by a sharp rise in Omicron cases, with SSP Group, down 4.6% to 214.3p, Greencore, down 4.4% to 125.1p, Greggs, down 3.9% to 2,978p and Hotel Chocolat, down 2.9% to 495p.
Other fallers included THG, down 7.1% to 167.2p, Deliveroo, down 3.4% to 214.2p, Associated British Foods, down 3.1% to 1,891p and Hilton Food Group, down 2.7% to 1,102p.
The day’s risers included Fevertree, up 2.6% to 2,673p, McColl’s Retail Group, up 1.7% to 12p, Nichols, up 1.5% to 1,340p, Glanbia, up 0.9% to €12.49, Cranswick, up 0.9% to 3,668p and Coca-Cola Europacific Partners, up 0.4% to €47.92.
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