Walmart in talks with potential Asda buyers

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Walmart (WMT) has announced it has begun talks to sell a majority stake in Asda, after “inbound” interest from multiple potential suitors.

The US giant said it was in talks with a “a small number of interested parties”, although it stressed it still saw an IPO as a long-term objective.

The developments come 11 months after the CMA dashed Asda’s plans for a merger with Sainsbury’s, claiming it would have had a serious impact on choice and prices.

In May last year Walmart chief executive Judith McKenna revealed it was considering an IPO for Asda although indicated it may take years to achieve.

Yesterday, Asda said any deal with the interested parties would involve Walmart retaining a “significant minority” stake in the retailer.

“Walmart firmly believes that an IPO is an attractive long-term objective for Asda,” a joint statement from Asda and Walmart said. “Asda is a great business with a clear strategy for the future and Walmart is committed to ensuring it has the resources and support it needs to deliver that strategy.

“Walmart has a clear international strategy around ‘strong local businesses, powered by Walmart’ – which involves a number of different ownership arrangements depending on the needs of its different markets.

“Following inbound interest Walmart and Asda can confirm that we are currently considering whether there is an opportunity for a third party to invest in Asda, alongside Walmart, in order to support and accelerate the delivery of Asda’s strategy and position Asda for long term success.

“Together, we are in discussions with a small number of interested parties who share Walmart and Asda’s commitment and passion to growing the business – and who share our values, both for our customers and colleagues.

“No decisions have been made and we will not be commenting further on these discussions. If or when we decide to pursue this opportunity further our first priority will be to share more detailed information with our colleagues.”

Earlier this month Asda posted a 1.3% decline in like-for-like sales in the fourth quarter, including the key Christmas trading period, saying it had been hit by “challenging market conditions “.

However, UK CEO and president Roger Burnley insisted Asda’s price positioning against its rivals had continued to improve, year on year and quarter on quarter, and pointed to strong online growth.

Morning update

ReckittBenckiser (RB) has posted an annual loss of £3.7bn after taking a £5bn hit on the value of its baby milk business Mead Johnson, which it bought for US$17bn in 2017.

The FTSE 100 consumer giant said that at the time of the acquisition it expected medium-term market growth of 3-5% and to be able to increase the inherited 23% operating margin by an incremental 6-7% with £200m annual synergies.

However, in China it said the prospects for market growth have lowered, as a sustained materially lower birth rate has become likely. “In addition, the competitive dynamics have changed with evolving regulation and the progress of a number of local competitors,” it said.

As such it has reduced expected revenue growth to 3% and has cut the value of its £15bn business to just under £10bn.

Posting its annual results, Reckitt said like for like revenue growth in 2019 was just 0.8% higher, with volumes falling by 2% and price increases adding 3% of growth and improved sales in Hygiene and Home were offset by volumes declines in Health.

Total full year net revenue was up 2% to £12.8bn, helped by a 1.2% boost from currency translation.

On a geographical basis, Europe, Australia and New Zealand returned to growth across both Health and Hygiene Home. North America saw in-market consumption growth ahead of net revenue, due mainly to retailer destocking and supply challenges in the Health business. Developing Markets delivered strong growth in our Hygiene Home portfolio but weakness in Health, particularly across Africa, the Middle East, ASEAN and LATAM.

FY gross margin was 60.5%, a decline of -10bps, reflecting a decline in Health offset by expansion in Hygiene Home.

The Mead Johnson impairment drove a net loss of £3.7bn, which was exacerbated by a £898m charge from discontinued operations and a $1.4bn settlement agreed with the DoJ in respect of Indivior related matters.

Reckitt said it was “too early” to fully assess the impact of the COVID -19 outbreak on the operational and financial performance of the group.

CEO LaxmanNarasimhan commented: “We ended 2019 broadly in line with our expectations for net revenue growth and adjusted operating profit from October, as our Hygiene business delivered another stable performance. Health remained weak from a net revenue perspective, but consumption and market share trends are encouraging.

“While the recent years have been difficult, I believe strongly in our ability to restore performance credibility, and over time, outperform, while making a positive impact on the world. I know that my leadership team and the broader organisation is inspired and ready to take on the work to make this happen.

“Our strategy will be to play in three attractive spaces of Hygiene, Health and Nutrition and we will invest in our organisation accordingly, to leverage both the significant scale RB has in key markets, but also the benefits of focus which has already been proven in Hygiene Home.

“We have a clear plan to invest £2 billion in our business over the next 3 years to make this happen. Specifically, in 2020 we will increase investment behind our digital capability, in-market competitiveness and operational resilience, particularly in customer service, as well as innovations, as we align around our new organisation.”

UK ready meals player Bakkavorhas posted a 1.5% increase in annual group revenues for the 2019 finanical year to £1.89bn.

Like-for-like revenues were up 1.7% to £1.79bn, with the increase primarily due to good growth in the group’s International segment together with a solid performance in the UK despite relatively weak levels of consumer confidence.

Group Adjusted EBITDA was in line with the prior year at £153.5m, with operating profit down 18.9% to £69.4m as a result of initial start-up losses in its new international sites and an increase in depreciation following a period of heavy investment.

It held its adjusted EBITA margin in the UK, but group-wide EBITDA margin fell 20bps to 8.1% reflecting ongoing investment in its International infrastructure to support volume growth and deliver the efficiencies from scale.

During the year it completed investment at desserts site in Newark and integration of Blueberry Foods on track, while the UK benefitted from transfer of significant new meals business following investment at four sites.

It said it was developing stronger US retail partnerships to build foundations for future growth, while three new sites in China now fully operational, increasing capacity to support growing demand.

CEO AgustGudmundsson said: “This was another solid year for Bakkavor, in which we delivered further growth, increased market share, and strengthened our operations both in the UK and internationally, whilst reporting performance in line with expectations. 

“In the UK, against difficult market conditions, and with further labour inflation and low consumer confidence, we successfully protected EBITDA margins and held our underlying profitability. We have significantly strengthened our market-leading position in the desserts category and launched a major new meals range for one of our strategic customers which give us confidence going into 2020.

“In our International businesses, we continue to develop our operations to take advantage of the long-term potential in both the US and China. Volumes are accelerating across our new sites, the demand for our products is growing and interest in our fresh prepared meal offer is gaining traction particularly with US regional retailers.

“More recently, the Coronavirus outbreak is having a significant impact on our business in China and our key priority is to safeguard the health and wellbeing of our colleagues through this challenging period. We continue to monitor the situation closely as it develops.

“Looking further ahead, we have strong foundations and the skills and expertise in place to deliver on our long-term strategy. We are confident that the strength of our business model, customer strategy and category excellence will enable us to capitalise on further growth opportunities.”

British American Tobacco (BATS) has reported a 5.7% rise in 2019 revenues to £25.9bn, with the majority of revenue growth driven by traditional tobacco products.

Over 67% of the growth driven by combustibles (with price/mix in cigarettes of 9%) and supported by higher revenue in both new categories and traditional oral.

These factors, combined with a translational foreign exchange tailwind of 0.6%, more than offset the impact of a 4.4% decline in total cigarettes and THP volume.

Excluding the foreign exchange tailwind and the effect of excise on bought-in goods, adjusted revenue increased 5.6% at constant rates of exchange.

The decline in group cigarette and THP volume in 2019 to 677 billion sticks was despite growth in Japan, the Middle East, South Africa, Romania and Poland. These were more than offset by lower volume in Russia (partly due to the one-off stock reduction), Egypt (largely due to the change in local taxes particularly impacting Pall Mall), Venezuela (due to the ongoing macro-economic challenges) and the impact of market decline in the US, Indonesia, Pakistan and Ukraine.

New Categories revenue grew 36.9% or 32.4% to £1,214m at constant rates despite the slowdown in US vapour due to a regulatory crackdown. Excluding US vapour, new categories revenue grew 39% at constant rates.

Profit from operations, on a reported basis, was down 3.2% at £9bn, with operating margin down 320 bps to 34.8%, as an improvement in the group’s operating performance was more than offset by the impact of charges in respect of the Quebec Class Action (£436m), amortisation and impairment of trademarks (£481m), an excise dispute in Russia (£202m), other litigation costs and restructuring programmes.

Adjusted profit from operations at constant rates of exchange was 6.6% higher at £11bn driven by operational efficiencies.

CEO Jack Bowles commented: “When I became CEO, my commitment was to maximise value growth from combustibles, deliver a step change in New Categories and develop a simpler, stronger, faster, more agile organisation to create a better tomorrow. I am delighted with the progress we have made in all areas.

“We have delivered value growth from our combustible business and grown our New Categories business, now providing potentially reduced risk products to close to 11 million consumers. In September, we announced a significant restructuring and simplification programme, which is largely complete. This will create the capabilities and resources to continue investing in New Categories and allow us to deliver on our financial commitments. Looking into 2020, we are confident of another year of high single figure adjusted constant currency earnings growth.”

The world’s largest brewerABInBev (ABIABI) has posted a 4.3% uplift in 2019 sales, though growth slowed to 2.5% in the fourth quarter of the year.

Revenue per hectalitre grew by 3.1% in the year and a more modest 0.9% in the fourth quarter.

ABI said that healthy volume growth was enhanced by global premiumization and revenue management initiatives, although revenue per hl growth decelerated as a result of advances in its smart affordability strategy.

Total volumes grew by 1.1% in the year, with own beer volumes up 0.8% and non-beer volumes up 4.8%. In 4Q19, total volumes increased by 1.6%, with own beer volumes up 0.8% and non-beer volumes up 8.0%.

Combined revenues of our its three key global brands, Budweiser, Stella Artois and Corona, grew by 5.2% in the year and by 2.1% in Q4. Outside of their respective home markets, the global brands grew by 8.0% in FY19 and by 3.9% in 4Q19.

Significant commodity and currency headwinds drive cost of sales higher by 7.4% in the year.

However, EBITDA increased by 2.7% the year to US$21bn as top-line growth and continued cost discipline enhanced by synergy capture was partially offset by elevated cost of sales per hl. EBITDA margin contracted by 65 bps to 40.3%.

Normalized profit attributable to equity holders of ABInBev was US$8bn in 2019 versus US$6.2bn in 2018.

ABI said, looking forwards, the COVID -19 outbreak “has led to a significant decline in demand in China in both on-premise and in-home channels”. Additionally, demand during the Chinese New Year was lower than in previous years as it coincided with the beginning of this outbreak. For the first two months of 2020, its estimates that the outbreak has resulted in lost revenue of approximately US$285m and lost EBITDA of approximately €US170m.

It said it will continue to evolve our top-line growth to be more balanced between volume and revenue per hl. In 2020 it expects EBITDA growth of 2-5%, with the majority of growth to be delivered in the second half of the year. However, EBITDA will decline by around 10% in Q1 given the impact of COVID -19 on our results as well as a challenging comparable, especially in Brazil.

Finally, French retailer Carrefour (CA) has announced a “clear improvement” in its financial performance in 2019.

It posted an acceleration in sales growth to 3.1% on a like-for-like basis compared to 1.8% in 2018, driven by strong growth in its home market of France and the US.

The Group’s sales inc VAT stood at €80.7bn, an increase of 2.1% at constant exchange rates.

Gross margin stood at 22.3% of net sales, down -9bp, due to price investments, offset by purchasing gains, lower logistics costs and improved performance in financial services.

However, recurring operating income of €2.1bn represented an increase of €145m (7.4%) at constant exchange rates.

Chairman and CEO AlexandreBompard commented: “The Carrefour 2022 plan is generating solid results and sets the Group on a profitable growth trajectory. These results are visible in our financial performance and in all our strategic priorities: the pace of expansion of our growth formats is accelerating, organic and Carrefour-branded products are gaining ground, we are outperforming the market in food e-commerce and our price competitiveness is improving.

“This momentum is reflected in improving customer satisfaction, which is more than ever at the heart of our priorities. We assert our leadership in the food transition for all, and raise or confirm all the Carrefour 2022 targets.”

On the markets this morning, the FTSE 100 has sunk 2.3% back to 6,884.4pts.

Big fallers so far include Bakkavor, down 4.3% to 119.2p, Marks & Spencer (MKS), down 4% to 165p and SSP Group (SSPGSSPG), down 3.9% to 546p.

FTSE 100 fallers include Associated British Foods (ABFABF), down 3.4% to 2,334p and Diageo (DGEDGE), down 3.3% to 2,837.5p. Reckitt is down 3% to 5,919p after this morning’s announcement, while British American Tobacco is down a modest 0,9% to 3,192p.

ABInBev is down 0.6% to €61.89, while Carrefour is one of the market’s few climbers, up 1.5% to €16.08.

Yesterday in the City

The FTSE 100 recovered somewhat yesterday, rising 0.4% to 7,042.4pts despite setting a new annual low of 6,871.9pts in mid-morning.

Diageo (DGE) ended the day down 0.9% after it warned of the financial impact from the coronavirus outbreak in China and beyond, while travel retailer SSP Group (SSPG) was down 4.9% to 568p after setting out the impact of the virus on its business, particularly in Asia.

McColl’s (MCLSMCLS) fell 15.3% to 36.5p after posting its annual results and falling to a near £100m loss and axing its dividend.

Other fallers included Finsbury Food Group (FIFFIF), down 4.9% to 98p, WH Smith (SMWHSMWH), down 3.6% to 2,120p, Devro (DVO), down 3.4% to 152p, Bakkavor, down 3% to 124.6p, FeverTree (FEVRFEVR), down 3.2% to 1,351p and Greencore (GNCGNC), down 2.6% to 225p.

Retailers hit yesterday included B&M European Value Retail (BMEBME), down 2.6% to 333.6p, Marks & Spencer (MKS), down 2.3% to 172p and Morrisons (MRWMRW), down 2% to 173.3p.

There were risers yesterday, which included Hotel Chocolat (HOTCHOTC) rising a further 4.8% to 422p after its strong annual results on Tuesday, Ocado (OCDOOCDO), up 2.4% to 1,121.5p, DS Smith (SMDSSMDS), up 2.1% to 346.6p, McBride (MCBMCB), up 2.1% to 67p and PZCussons (PZCPZC), up 2% to 187.6p.

Nichols (NICLNICL) ended the day up 1.5% to 1,400 after posting its annual results featuring profit and sales growth, while Danone (BNBN) was up 0.5% to €67.94 in Paris after posting its own annual results.