City snapshot: Premier Foods suffers further slump in sales

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Premier Foods (PFD) has revealed a difficult start to the year as first quarter sales fell 3.1%, driven by changes to supermarket promotions, less demand for its products in the June heat and general weakness in the market.

Sales in its branded grocery portfolio, including Bisto, Batchelors, Loyd Grossman and Ambrosia, slumped 7.9% in the 13 weeks ended 1 July, more than offsetting 1.4% growth in the Mr Kipling and Cadbury cakes division.

Despite “encouraging” market share gains in major retailers in the grocery category and some pricing benefit in the quarter, Premier took a hit from changes from multi-buy promotions, which boost volumes, to straight price reductions. Its quarter-on-quarter sales also suffered from lower market volumes, partly reflecting the warm weather in June.

The supplier said trading in April and May was “encouraging” while June was slower in the flavourings & seasonings, desserts and cooking sauces & accompaniments categories.

Its small own-label business also recorded growth of 11.3%, with international sales increasing 20% – the 11th of overseas growth in a row.

Premier also unveiled the first benefits from its relationship with Japanese group Nissin as the revamped Batchelors Super Noodles and the Nissin Soba product, which have listings in three supermarkets, contributed £3m in retail sales.

The relaunched Batchelors Super Noodles helped the Batchelors brand grow sales for the second consecutive quarter and regain its position as market leader in the category after declining for three years at an average of 6%.

CEO Gavin Darby said: “Our first quarter sales were lower than last year, as we expected, primarily due to lower sales volumes in the grocery categories, notably desserts.

“At the retail level we have continued to outperform our markets and industry peers, our international business grew 20% in the quarter, and our cost savings programmes are on track.

“We expect to report positive sales growth in the second quarter, broadly flat sales in the first half and our expectations to deliver progress in the full year are unchanged.”

Premier added that at a retail sales level, the group’s performance was “more encouraging”. Branded sales rose 2.3% in the 12 weeks to 18 June, well ahead of the majority of its competitors, according to Kantar Worldpanel. “While the overall outlook in the grocery market remains competitive and challenging, the group has driven market share gains in Bisto, Batchelors, Loyd Grossman, Mr Kipling and Cadbury cake in the first quarter, which underpins confidence for the remainder of the year,” the business said in the trading update.

Shares in the group nudged 0.6% higher to 39p despite the slow start.

Morning update

Unilever (ULVR ) said the preparation for the sale of its spreads business was “well underway” as the Dutch consumer goods giant unveiled a 5.5% jump in first-half revenues to €27.7bn.

The group recorded underlying growth in all its categories and sub-categories except for spreads, which contributed €1.5bn to the total and saw the rate of decline slow to 3.7% as growth in emerging markets partially offset the continued market contraction in developed countries.

New margarines with specialty oils and the roll-out of the dairy-free variants performed well in the half, Unilever said, but the margarine market contraction continued to weigh on overall growth in Europe, particularly in the UK and Germany.

The 5.5% increase in group sales in the first half was made up of a 1.7% boost from currency tailwinds, with a weak pound helping, acquisitions and 3% of underlying growth thanks to higher prices and flat volumes.

Turnover in the second quarter rose 4.9% to €14.4bn. CEO Paul Polman said he expected growth to accelerate in the second half of the year.

“Our first-half results show continued growth well ahead of our markets and a substantial step-up in profitability despite the persisting volatile global trading environment,” he added. “It once more shows the validity of Unilever’s long-term compounding growth model. Our change programme ‘Connected 4 Growth’ (C4G), which started in the autumn of 2016, is delivering ahead of plan.

“The transformation of Unilever into a more resilient, more competitive and more profitable business is accelerating. C4G is making our business even more agile, less complex and increasingly responsive to fast-changing consumer trends. The resulting increase in innovation speed and effectiveness will allow us to grow ahead of market.”

Unilever improved gross margins by 40 basis points to 43.1% in the half, driven by innovations and acquisitions, as well as the cost-savings programmes. Brand and marketing investment contributed 130bps to margin progression as the group recalibrated advertising spend and made “strong savings” delivery from the zero-based budgeting programme. Underlying operating margin improved by 180bps to 17.8%, with operating margin at 17.5%.

“The actions we are taking keep us on track for another year of underlying sales growth ahead of our markets, in the 3 - 5% range. We anticipate accelerating growth in the second half of the year driven by the phasing of our innovation plans and a step-up in brand and marketing investment. We now expect an improvement in underlying operating margin this year of at least 100 basis points and strong cash flow.”

The Co-operative Group has confirmed the appointment of Jo Whitfield as CEO of the food division following a successful interim period in charge in which she maintained the impetus of the business, anchored around its core convenience strategy. Whitfield joined The Co-op in 2016, initially as food finance director. She became the interim CEO for food in February this year when Steve Murrells was appointed as group CEO.

Vimto owner Nichols (NICL ) has boosted revenues 12.4% to £63.5m in the first half to 30 June as the soft drinks maker continued to outperform the market in the UK. Operating profits also leapt 7.1% to £12.7m and adjusted pre-tax profits were up 6.8% to £12.7m despite input cost challenges.

UK revenues totalled £47.5m, an increase of 6.7% compared with the prior year. The performance was significantly ahead of the total soft drinks market, which showed total growth of 2.9% in the same period, according to Nielsen data. The Vimto brand continued to outperform the market with sales up 10% versus the same period in 2016, driven by strong growth in the still and carbonate segments.

International revenues also increased by 33.5% in the period to £16m, which is 24.7% on a constant currency basis. In Africa, revenues were up by 30.9% and the Middle East was ahead by 19.8%.

Non-executive chairman John Nichols said: “Nichols has delivered another strong performance in the first half of the year. Our sales momentum, which continues to outperform the UK market coupled with successful management of input costs has delivered solid profit growth.

“Whilst we anticipate that market conditions will remain challenging during the second half of the year, we have a clear strategy and, underpinned by the strength of our brands and our diversified business model, we are confident of delivering full year results in line with expectations.”

Nichols increased its interim dividend by 12.2% to 10.1p a share to reflect the continued confidence in the outlook for the group.

The business also announced the appointment of Helen Keays to the board as an independent non-executive director and chairman of the remuneration committee with effect from 1 September 2017. Her appointment follows John Longworth’s departure at the AGM in April. Keays has a background in marketing and is currently senior independent director at Domino’s Pizza Group and a non-executive director and chairman of the remuneration committee at Communisis.

Hilton Food Group (HFG ) benefitted from the strength of the currencies in which it operates relative to sterling, offsetting the impact of start-up costs elsewhere in the business, the red meat supplier said in a trading update for the 28 weeks to 16 July. During the period, the group’s performance was in line with the board’s expectations. “We have continued to grow the business, through additional volumes and close cooperation with our retail partners,” Hilton said.

Turnover continued to grow in the UK, compared with a year ago, reflecting higher raw material prices and some trading up, as well as a good start to the barbecue season. Both the Swedish and Irish business experienced “encouraging” top-line growth in the first half. In Ireland, Hilton added it had seen a recovery in Republic of Ireland volumes as well as an expansion of the Ocado product range serviced from Ireland.

In Australia, the group recorded double-digit volume growth from its joint venture covering Bunbury and Victoria in the first half. The business in Portugal continued to show good progress, as Hilton executed against the scheduled development plan, while processing significant volumes, which more than offset the impact of start-up costs.

“The group’s financial position remains strong and Hilton continues to explore opportunities to invest in and to grow the business in both domestic and overseas markets,” it said.

Sports nutrition company Science in Sport (SIS ) has reported “another period of strong sales increases and significant progress in execution of the growth strategy”. In a pre-close trading update for the six months to 30 June, the business increased sales 28% to £8.3m, compared with the same period a year ago. The e-commerce platform delivered growth of 78% across all markets, while there was also growth in all retail channels. Additionally, the company increased investment in its US and Italian businesses, which are trading in line with expectations, as is the Australian business.

SIS said the science and innovation pipeline were healthy and revenues are expected to accelerate in the second half of the year, with a WHEY20 relaunch in July 2017 and both a premium recovery product and a novel immunity product to be launched in August 2017.

CEO Stephen Moon said: “We have had a strong start to the year in a difficult market, and have made very good progress, particularly when many of our competitors continue to face growth challenges.

“We have invested heavily in international markets and increased our investment to capitalise on opportunities we are seeing. We continue to invest in all aspects of our e-commerce business and that is reflected in the high growth delivered. We have good momentum and together with our healthy innovation pipeline, we expect to have a strong second half.”

Shares in Unilever are up 0.8% to 4,350p on the solid first-half results, with Nichols surging 1.8% to 1,900p, Hilton down 0.2% to 723.5p and Sciene in Sport leaping 2.5% to 90.5p.

Yesterday in the City

Reckitt Benckiser (RB) was one of the big movers in grocery and fmcg stocks yesterday as it sold its food division for a healthy £3.2bn to the US owner of Schwartz spices McCormick (MKC). Shares in the Durex and Dettol supplier shot up 1.6% (almost £1.20 a share higher) to 7,937p as the City welcomed the high multiple paid by McCormick, which didn’t fare so well in New York – with shares slumping more than 5% in early trading to $92.10.

Hotel Chocolat (HOTC) ended the day 1.8% in the red as shares fell to 330p. Investors sold off shares after rises in the morning as the luxury chocolate retailer said in a pre-close trading update that its sales jumped 12% to £105m last year.

Dairy Crest (DCG) had another healthy day and investors continued to buy the stock, pushing it up another 2.3% to 590p. The dairy group is up more than 5% since revealing on Tuesday strong volume growth at its core cheese, butter and oil brands in the first quarter. The City didn’t seemed spooked by the warning of pressure on margins caused by higher butter prices.

The FTSE climbed 0.6% higher to 7,430.91 points.