City snapshot: Sainsbury’s defers dividend amid £500m coronavirus hit

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Sainsbury’s (SBRY) has deferred its final dividend amid the “significant impact” of the coronavirus outbreak on its business, which it expects to generate £500m of extra costs.

Announcing its annual results this morning, the supermarket said that “given the wide range of potential profit and cash flow outcomes” it believes it is “prudent to defer any dividend payment decisions until later in the financial year, when there will be improved visibility on the potential impact of COVID-19 on the business”.

The virus outbreak will have a profit impact of over £500m due to significant costs associated with protecting customers and colleagues, weaker fuel, general merchandise and clothing sales and lower financial services profitability.

However, Sainsbury’s said this will be broadly offset by stronger grocery sales and approximately £450m business rates relief, though Sainsbury’s has not furloughed employees or delayed VAT payments.

Sainsbury’s said it has experienced “high single digit percentage” grocery sales growth through the lockdown period.

This is likely to slow to “low single digit” sales growth over the remainder of the first half of the year, reflecting a greater number of meals being eaten inside the home rather than in schools, workplaces, cafes and restaurants, with a “return to normal” conditions in the second half.

Argos has experienced a “low teens” percentage sales declines in the lockdown period, reflecting the closure of 573 standalone Argos stores.

The group’s financial services arm is expected to make a loss in the current financial year due to an increase in bad debt provisions, reflecting an assumed increase in unemployment

“Whilst this represents a very challenging trading environment, our financial services business is well capitalised,” Sainsbury’s said. Its financial services arm has capital resources of around £1bn and over £100m surplus capital at year end as well as excess liquidity of around £200m.

“We are confident that the financial services business will not require capital injections from the group,” Sainsbury’s said.

For the 52 weeks to 7 March 2020, Sainsbury’s reported a 2% drop in underlying profit before tax to £586m, while statutory profit before tax was up 26% to £255m.

Underlying profit was up 8% in the second half, following a 15% decline in the first half due to phasing of cost savings, higher marketing costs and tough weather comparatives

The supermarket said grocery sales improved through the year, following investment in the customer offer, resulting in outperformance of main peers.

Grocery sales grew by 0.4% year-on-year, with Groceries Online sales grew 7.6%, convenience grew 1.3% and supermarket sales declined 0.1%, impacted particularly by general merchandise sales declines.

Overall group and retail sales (including VAT, including fuel) both decreased by 0.1% year-on-year.

CEO Mike Coupe commented: “The last few weeks have been an extraordinary time for our business. First and foremost, I want to say thank you to all of our colleagues. They have shown outstanding commitment and resilience over the past few weeks and I am in awe of their adaptability and the efforts they have made to continue to serve our customers.

Across every part of the business, colleagues have played their part as we have done everything possible to feed the nation and to prioritise those who are least able to access food and other essential services.

“This is an unsettling time for everyone, but I am incredibly proud of the way the business has responded, continually adapting and responding to customer feedback. We will continue to work hard to provide food and other essential products to households across the UK and Ireland who are adapting to a new way of living.”

Morning update

Reckitt Benckiser (RB) has upgraded financial expectations for the rest of 2020 after an “encouraging” start to its financial year.

The consumer health group posted group like for like growth of 13.3% in the first quarter, driven by strong demand for its hygiene and health products, in particular compared to a weaker quarter for its health division in 2019.

Reckitt said it saw strong demand in the first quarter for Dettol, Lysol, Mucinex, Nurofen and VMS as the business sustained supply despite challenging conditions in many markets.

It reported overall health LFL growth of 13.6%: strong demand for Dettol, OTC and Other Health in North America, Europe and Australia, partially offset by lower growth in developing markets and declines China, reflecting retail restocking in 2019

Hygiene posted LFL growth of 12.8%, with strong growth in most markets – in particular double digit growth in North America, Europe / ANZ, and Latin America.

Despite expecting 2020 performance “to be better than our original expectations”, Reckitt warned the outlook for the rest of the year remains uncertain with significant coronavirus challenges across its markets.

“We expect to incur higher operating costs, particularly in our supply chain, as we keep our people safe, mitigate disruptions and serve the needs of our consumers,” the group said.

However, its medium term outlook for sustained mid-single digit organic revenue growth and mid 20’s margin by 2025 remains unchanged.

CEO Laxman Narasimhan commented: “This is a uniquely challenging time. By almost any measure, none of us have lived through a period of such uncertainty. The exceptional demand has resulted in some customers and consumers facing shortages for some of our products. RB has responded with its typical can-do attitude, ramping up production, streamlining our SKUs and working with customers and suppliers to overcome significant barriers, while incurring additional cost.”

“We have seen strong consumer demand, particularly in March and April but the split between defensive buying and higher levels of underlying consumption is unclear. At this stage, it is uncertain how quickly this will change in the months ahead. Improved penetration and usage, particularly for products like Dettol and Lysol, may well sustain, although we will likely see some unwinding of ‘pantry load’ as we work our way through the crisis. The near-term operational challenges to meet additional demand and handle lockdown conditions, with the associated costs, are also likely to continue for some time.”

“We are making good strategic progress to position our business for success. I am heartened that the ambitions we have outlined to rejuvenate RB have gained support throughout the business. As a result, we are already executing our plan and making progress during this transformational year - one that lays the foundations for our success in the future; investing in our people, brands and operations, improving delivery performance and increasing productivity.”

Calsberg has reported a first quarter organic revenue decline of 7.4% as the coronavirus outbreak continues to hit its sales volu,es.

Organic volumes fell 7.6% in the first three months of 2020, with volumes down 6% in Western Europe, 15.5% in Asia and 3.3% in Easter Europe.

Total sales were down 6.8% to DKK 12.9bn.

Depsite the wider falls, including a 15% drop in Tuborg volume and 10% for the Carlsberg brand, craft & speciality volumes were up 1% and alcohol-free brews were up 5%.

2020 Earnings expectations remain suspended due to the significantly increased uncertainty concerning the impact of the COVID-19 pandemic on business performance.

CEO Cees ’t Hart commented: “Across the world, the coronavirus continues to be an immense challenge for people, regulators and businesses, changing lives for everyone.

“Our businesses in all markets are impacted to a greater or lesser extent. While we’re starting to see signs of recovery in our largest market, China, and initial signs of governments cautiously lifting restrictions in some Western European markets, other markets remain in lockdown. Nevertheless, social-distancing requirements will continue and will impact consumer behaviour. Consequently, volumes will decline further in Q2.

“Carlsberg remains in strong financial health. To mitigate the impact of weaker volumes, we’re reinforcing our cost focus and maintaining a strict focus on cash and liquidity, while ensuring that this will not compromise the long-term health of our brands and our organisation.”

Marks & Spencer (MKS) has reshuffled its non-exec board with two new appointments.

Tamara Ingram and Sapna Sood will join the M&S board in non-exec director roles with effect from 21 May 2020.

Ingram joins from a longstanding career in advertising, marketing and digital communications having held leadership roles at WPP since 2002, including setting up the consumer insight division.

Sood is a director at Compass Group, where she leads the International Clients and Market Development business.

Additionally, having served for over six years, Alison Brittain has decided that the time is now right to step down from the Board and she will retire as a director prior to the AGM in July 2020.

Chairman Archie Norman said, “To support the transformation challenge at M&S we have built a very strong board with diverse and relevant operational experience who are closely engaged with the executive team.

“The appointment of Tamara and Sapna, in addition to Eoin [Tonge] joining the board as an executive director [CFO], will bring in fresh and diverse talent and two exceptionally smart new people. Our enormous thanks go to Alison who has been a strong and active board member for the last six years.”

Beer and cider distributerC&C Group (CCR) has updated the market on the impact of coronavirus on its business.

Capital spend significantly reduced will be significantly reduced during the year, expected to be in a €7m to €10m range for 2021.

It will also reduce marketing and minimised discretionary spend.

There has been an average of a 20% salary reduction across our workforce. Executive leadership team and Board remuneration reduced by 30% and 40% respectively for an initial three months and reviewed thereafter

Approximately 70% of employees have been placed on furlough.

In March it announced the successful issue of approximately €140m new US private placement notes.

The Group has current liquidity of €570m of which €430m is cash. It has also now received confirmation from the Bank of England that it is eligible to issue commercial paper under the COVID-19 Corporate Financing Facility Scheme.

“The Board believes that its existing liquidity position is more than sufficient for the Group’s current and expected needs,” it stated.

However, given absolute focus on cash conservation and the group’s decision to avail of government support through this crisis, C&C said it is neither appropriate, nor prudent, to declare a final dividend for its 2020 financial year.

British American Tobacco (BATS) has downgraded full year growth expectations amid an expected drop in sales volumes in the second quarter.

BAT said the impact from COVID-19 is difficult to predict, but it is anticipating a reduction in trade and consumer stocks and some effect on industry volume and revenue growth in Q2.

“This, together with some delayed launches in new categories, means we expect results to be weighted to the second half,” it said.

Therefore it expects constant currency adjusted revenue growth around the low end of its 3-5% range

Including expectations for global industry cigarette and THP volume decline to around 5% (previously 4%), it maintains its forecast for US industry decline at around c.5%

“Overall, and considering the challenging environment, our business is resilient, competitive and performing well, and we are confident in delivering another good year of adjusted diluted high single figure EPS growth in constant currency,” it stated.

On the markets this morning, the FTSE 100 is down 0.3% to 6,099.3pts so far this morning.

Sainsbury’s shares are down 2.7% to 201.9p, while Reckitt shares have jumped 4.1% to 6,662p.

Other risers include Hilton Food Group (HFG), up 4.5% to 1,162p, Marston’s (MARS), up 4.4% to 36.4p and Bakkavor, up 3.4% to 73.4p.

Fallers include PayPoint, down 3.7% to 671p, Greggs (GRG), down 2.9% to 1,835p and WH Smith (SMWH), down 2.4% to 1,283p.

Yesterday in the City

The FTSE 100 ended the day up 2.6% to 6,115.3pts - rising back above 6,000pts for the first time since early March.

Strong FTSE 100 movers included Imperial Brands (IMB), up 5.7% to 1,418.5p, Imperial Brands (IMB), up 6.3% to 1,735p and Associated British Foods (ABF), up 5.2% to 1,953p.

Other risers included PureCircle (PURE), up 11.7% to 83.2p, WH Smith (SMWH), up 10.4% to 1,315p, PayPoint (PAY), up 10% to 697p, Marston’s (MARS), up 9.5% to 34.8p, SSP Group (SSPG), up 7.8% to 305.2p, Cake Box (CAKE), up 7.3% to 164.3p and PZ Cussons (PZC), up 5.5% to 185.6p.

Other fallers included Cranswick (CWK), down 2.1% to 3,798p, C&C Group (CCR), down 2% to 197p, Hilton Food Group (HFG), down 1.9% to 1,112p and Ocado (OCDO), down 1.6% to 1,625p.