City snapshot: Premier Foods Christmas sales jump on grocery growth as it shuts factory

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Premier Foods posted double-digit growth in its crucial third quarter as it announces the proposed closure of its Knighton powdered beverage factory, affecting 300 roles.

The ambient food supplier said sales were up 12% in the 13 weeks to 31 December, with branded sales up 8.8%.

Growth was driven by a particularly strong performance in grocery, as total sales increased by 17.4% and branded sales grew by 15.5% versus last year.

It said this grocery growth was broad-based, with all of the group’s major brands performing strongly. While pricing contributed a significant proportion of revenue growth in the quarter, demand was also particularly buoyant running into the key festive period.

Sales of The Spice Tailor again grew by double-digit and its integration into the group continues to “progress well”.

Non-branded grocery sales also grew by 29.6% due to pricing benefit in retailer branded product categories and continued recovery in out of home sales compared to the prior year.

However, sweet treats were down 0.9% with branded sales slumping 10.8% and non-branded sales up 22.8%.

It said Mr Kipling remained in growth despite the overall drop, with Cadbury cake impacted by some unscheduled maintenance associated with one plant line, which has since been completed and full production now resumed.

International sales were up 10.2%, reflecting growth of Sharwood’s and Mr Kipling, notably in Canada and Europe.

Meanwhile, Premier has announced the proposed closure of its loss-making, predominantly non-branded, Knighton manufacturing site.

Knighton manufactures predominantly non-branded powdered beverages, so is “not aligned to the group’s branded growth model strategy” and is marginally unprofitable.

Effective from mid-2023, it plans for a “carefully managed exit” from non-branded revenue contracts of c.£27m sales. Cash exceptional costs of c.£10m associated with closure are expected to be incurred in FY23/24.

“It is recognised that this will be an unsettling time for those c.300 colleagues who are potentially affected by these proposals, and they will be fully supported and consulted with throughout the process,” it stated.

CEO Alex Whitehouse commented: “We delivered a strong trading performance in our important third quarter, with sales growth of 12% compared to the same period last year. These results illustrate the continuing appeal of our portfolio of market-leading brands in such a challenging environment and demonstrate the strength and resilience of our branded growth model.”

“Our major grocery brands produced a particularly good set of results for us, continuing to grow faster than the market, taking 66 basis points of share. Across the country, people got cooking again this Christmas, demonstrating that the Best Restaurant in Town really is at home.

“Many of our leading brands grew strongly, with established seasonal favourites including Ambrosia custard and new launches such as Bisto pigs-in-blankets gravy granules all proving very popular. Mr Kipling had another strong performance, with the introduction of our non-HFSS Deliciously Good Festive Pies helping to grow our mince pie market share.

“Meanwhile, our international business has now reported another quarter of double-digit sales growth, with Sharwood’s growing over 20% following major new listings in Canada.

“Input cost inflation remains at elevated levels, and we continue to take action to offset this inflation through a range of measures. With strong trading momentum as we enter our final quarter of the year, and with more brand investment and new product launches to come, we are well on track to deliver on expectations for the full year.”

Premier shares have edged up 0.2% to 114.2p this morning.

Morning update

Hotel Chocolat delivered “record” Christmas campaign sales across the UK store estate, but lower marketing spend hit overall first half sales at the group.

For the nine-week period ending 25 December 2022 UK retail like-for-like store sales increased 10% year on year.

It said it saw the strongest ever sell-through of full-price seasonal products, with residual Christmas inventory into January sale 80% lower year on year.

However, group total sales including international fell 8% in the period.

Overall, for the 26-week half year to 25 December, UK retail like-for-like sales were up 7% to £74m, but group sales, including international, fell 9% to £130m (albeit still 65% up from pre-Covid levels).

The group said the overall sales drop was driven by online revenues falling back due to return to stores together with a deliberately lower marketing spend, while wholesale revenues were lower than planned at the beginning of the year due to cautious inventory management by online partners and a focus on ‘quality over quantity’ with fewer new partners.

It said ‘quality over quantity’ continued to be its focus, with 2023 a transition year towards an improved business shape from 2024 onwards, with the goal of 20% EBITDA margin in 2025.

The group continues to trade in line with market expectations, though it remain cautious about consumer sentiment over the upcoming seasonal events of Valentine’s Day, Mother’s Day, Easter, Eid and Father’s Day.

It said it expects the trend of customers reverting to stores to shop to continue in the second half, which is advantageous to the brand given the stores are “well invested to deliver an uplifting experience for customers”.

Angus Thirlwell, co-founder and CEO, commented: “A late festive surge delivered sparkling store performances. When times are tough, shoppers prioritise quality products that are really worth it. Hotel Chocolat will continue to live up to these expectations: investing in more cacao and less sugar, funding nature-positive cacao farming, and championing British-made quality.

“We have grown Hotel Chocolat by 65% over the period since the start of the pandemic, adapting to some of the most difficult economic conditions on record. Taking a year, over FY23, to sharpen-up our operating model is the right thing to do, before we embark on further pursuit of the multiple growth opportunities ahead for our brand.”

Deliveroo has posted a full-year trading update, hailing a “solid” operating performance in 2022, despite the difficult consumer environment.

For the full year, gross transaction value (GTV) increased to more than £7bn for all operations (including results from Australia and the Netherlands until operations ended in November 2022).

That represents year-on-year growth of 7% in reported currency and 5% in constant currency.

For continuing operations (excluding Australia and the Netherlands), full-year GTV was up 9% in reported currency and 7% in constant currency, falling withing previously stated guidance.

In the fourth quarter GTV for continuing operations was £1.8bn, up 9% (6% in constant currency) year on year.

Orders declined (2)% year on year in the quarter, but this was more than offset by year-on-year growth in GTV per order of 11% (8% in constant currency), driven by item level price inflation and optimisation of consumer fees during 2022.

On a quarter-on-quarter basis, GTV increased by 10% in constant currency and orders were up 7%, as Q4 rebounded from the seasonally weaker Q3.

At its full year results announcement in March, it expects to report a full year 2022 adjusted EBITDA margin of approximately -1% for all operations (including Australia and the Netherlands), better than previous guidance of -1.2 to -1.5%.

Second half adjusted EBITDA was approximately breakeven for all operations; this represents a significant improvement in adjusted EBITDA margin from the first half.

Adjusted EBITDA is expected to continue to improve in 2023.

Will Shu, founder and CEO of Deliveroo, said: “I am proud of the team delivering significant improvements in profitability whilst also still delivering growth in a difficult macroeconomic environment. I am particularly pleased that we have done so while improving our consumer value proposition, meaningfully increasing the selection of restaurants and grocers available on the platform.

“As always, we continue to be focused on strengthening our offer for each side of our marketplace through a hyperlocal lens. Amidst an uncertain outlook for 2023, we remain confident in our ability to adapt financially and to make continued progress on our path to profitability.”

Finsbury Food Group said it delivered an encouraging first-half performance, despite the ongoing macro-economic and cost inflation challenges.

Total sales for the period grew by 14.7% to £190.9m, driven by price recovery initiatives on consistent period volumes.

The group saw a stable performance in UK retail (up 10.9%), an ongoing recovery in foodservice (up 22%) and continued strong performance in the group’s overseas division (up 23.4%).

It noted that food sector headwinds in the current financial year have exceeded those experienced during the previous financial period and that, to have delivered a robust performance in that context, “provides further validation of the group’s range of quality products, the viability of our operational strategy and the long-term prospects of our selected markets”.

It said it remains difficult to predict how macro challenges will develop in the second half, but the group will continue to focus on commercial terms, operational improvements and other supply chain and overhead initiatives.

It stated: “While a level of uncertainty is likely to persist through H2, the Board believes that steady ongoing demand and the Group’s market position, diverse product range (including the fully commissioned new buns and rolls capacity) and track record of successfully navigating challenges as they arise stand the company in good stead for the rest of the year.”

It said it remains on track to meet market expectations for the full 2023 financial year.

Bakkavor has delivered “robust” growth and a performance in line with market expectations for the full year to 31 December.

Group reported revenue exceeded £2bn for the first time, up 14.3% on the prior year and LFL revenue up 10.6%.

Growth was driven primarily by price in the UK, along with strong volume growth in the US, while Covid continued to impact volumes in China.

Growth reflects a solid performance in the UK, where market share gains underpinned by high service levels and breadth of product portfolio, and Christmas trading in line with expectations and well-executed operationally.

In the US, performance was impacted by disruption from taking on board volume growth and a contractual dispute with a customer at one site since November.

Adjusted operating profit for the year remains in line with market expectations.

It said that, whilst it has been successful in largely mitigating inflation through pricing and internal levers, there has been some impact on profits, which are down year on year.

As significant headwinds will persist through 2023, it has implemented a group-wide plan to protect profits.

The plan, which includes a leaner organisation structure and focused regional priorities, will deliver savings of £15m in 2023, and £25m on an annualised basis.

Mike Edwards, CEO, commented: “Despite 2022 being another challenging year, Bakkavor delivered a robust performance and once again demonstrated the strength of our customer relationships and the resilient foundations of our business. The relentless commitment and agility that our people have shown set us apart through this difficult period, and I would like to thank everyone for their hard work.

“Whilst market challenges will persist in 2023, the actions we are taking to protect profits, our clear strategy and our balance sheet strength, allow us to move forward with purpose and confidence, enabling us to deliver on our medium- to long-term ambitions.”

Finally, Nestlé has announced that Richard Watson is to become CEO of Nestlé UK and Ireland as Stefano Agostini moves to a new role after six years as market head.

Wilson is the current MD for Nestlé confectionery in the UK & Ireland and becomes CEO of the market in his 27th year at Nestlé.

Agostini will become the new head of confectionery for Nestlé’s Zone Europe with both changes taking effect on 1 March 2023.

Agostini joined Nestlé in 1989 and became CEO of Nestlé UK and Ireland in 2017 and has led the business to a turnover of more than £3bn during a period of substantial global change.

Agostini said: “It has been a pleasure and a privilege to lead this great business in the UK and Ireland. I am proud of the many things that we have achieved as a team, the way we have risen to challenges and moved our business forward.

“Our food industry is a valuable asset to the UK and Ireland and I have been proud to work alongside other manufacturers, retailers and farmers to help raise the voice of our sector and make it more resilient.”

Watson added: “I am honoured and incredibly excited to be taking on such an important role at such an important time. The UK and Ireland means a lot to Nestlé and it means a lot to me. I first joined Nestlé Purina in the UK in 1996 and have been lucky enough to build a career here over the last quarter of a century.

“This is one of Nestlé’s biggest markets and, from experience, I know it’s a great place to do business, to innovate, to grow and to work with very talented people. Equally, I know Nestlé continues to have a huge role to play in the UK and Ireland. We are a big part of communities here as a major manufacturer, an employer, an exporter and we are fortunate to provide many brands that families and pets have been relying on and enjoying for generations.

On the markets this morning, the FTSE 100 is down 0.6% to 7,781.7pts.

Risers include Hotel Chocolat, up 5.1% to 195p, Deliveroo, up 4.3% to 96p and Fever-Tree, up 3.8% to 1,082p.

Fallers include McBride, down 4.6% to 25p, Bakkavor, down 4.5% to 104.1p and Virgin Wines, down 3.6% to 53p.

Yesterday in the City

The FTSE 100 fell back 0.3% yesterday to 7,830.7pts.

WH Smith lost 2.9% back to 1,570p despite boosting group like-for-like sales by 26% at the start of its new financial year as travel retail rebounded.

Other fallers included Naked Wines, down 4.9% to 125.8p, Fever-Tree, down 4.1% to 1,042p, Haleon, down 2.8% to 318p, Nichols, down 2.8% to 1m060p and Diageo, down 2.6% to 3,667.5p.

The day’s risers included McBride, up 5.7% to 26.2p, Bakkavor, up 4.8% to 109p, Just Eat Takeaway.com, up 4.1% to 2,215.5p, Ocado, up 3.9% to 761.8p and Deliveroo, up 2.3% to 92.1p.