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Top News: Reckitt Benckiser misses expectations in first-half
Reckitt Benckiser reported lower revenue and adjusted profits in the first half of its financial year, missing analyst expectations, and warned it expects growth to slow in the third quarter before accelerating again in the fourth.
Net revenue declined 8.2% in the second quarter to £3.09 billion, leading interim revenue 4.5% lower year-on-year to £6.59 billion, below the £6.73 billion expected by analysts.
Adjusted EPS plunged over 14% in the first half to 142.6p, just missing the 144.3p forecast by analysts. At the bottom-line, Reckitt posted a 245.8p reported loss per share, having turned from a 144.6p profit the year before. That was also far worse than anticipated considering analysts had expected Reckitt to stay in the black.
Reckitt Benckiser shares were trading 9.3% lower this morning in early trade at 5684.5p.
The sale of its baby formula business in China – IFCN China – contributed to the decline and caused the loss. Excluding the division, net revenue was down 2.7% but up 3.6% at constant currency, while like-for-like growth was also strong at 3.7%.
Elsewhere, Reckitt said slower sales growth for hygiene products was partly offset by ‘improving trends’ for its nutrition and over-the-counter products.
‘Against a challenging environment, I am encouraged by the progress we have made in the first half of the year. Around 70% of our revenue, excluding IFCN China, is from brands growing by mid-single digits in the period, in line with our strategic vision. The remaining 30% includes our disinfection brands, which are structurally rebasing, as well as our cold and flu brands, which are now starting to show positive momentum,’ said chief executive Laxman Narasimhan.
Reckitt warned that it expected growth to slow in the third quarter as it comes up against tougher comparatives from last year when the pandemic led to a surge in sales. It said it expects to deliver a strengthened performance in the fourth as the cold and flu season kicks in, with Reckitt expecting a ‘moderate season’ this year.
The company also warned that cost inflation has accelerated, echoing similar concerns from peer Unilever. It said it will take time to play out but said it is trying to offset this with improved productivity and higher prices during the back-end of this year and early next year.
‘This will largely offset the margin accretion in 2021 from the disposal of IFCN China. As a result, our guidance, which now excludes IFCN China, is for the adjusted operating margin to be between 22.7% to 23.2% which is 40 to 90bps lower than the 23.6% reported for the full year 2020,’ Reckitt warned.
Reckitt said it has decided to keep its dividend in-line with last year at 73.0p.
‘We are encouraged by the progress we have made to strengthen the foundations of the business and reposition ourselves for sustainable growth. We expect to exit 2022 with a revenue growth run rate in the mid-single digits as we make our way towards our medium-term adjusted operating profit margin target in the mid-20s by the mid-20s,’ Reckitt added.
Croda shares hit all-time high after record interim performance
Croda International reported record adjusted profits in the first half of its financial year as demand increased across all four of its divisions and it benefited from new acquisitions, which prompted it to raise its sales target for the rest of the year.
Revenue jumped to £934.0 million in the six months to the end of June from £672.9 million the year before. Adjusted pretax profit surged to a record high of £229.5 million from £152.5 million, while reported profit increased over 40% to £204.1 million from £144.9 million.
Croda said sales were now ‘well above 2019 levels’ and up 10% on an underlying basis before the contribution from new acquisitions is taken into account.
Croda shares jumped 3.6% in early trade this morning at 8104.0p, marking a new all-time high for the stock.
Consumer Care revenue was up 46% year-on-year, Life Sciences reported a 62% jump, Performance Technologies increased 14.7%, and the Industrial Chemicals unit saw revenue increase 12.6%. Higher volumes and better prices were key drivers across the board, although acquisitions provided the biggest boost for its two largest divisions.
‘Our record first half performance reflects the impact of our strategic acceleration and investments, supported by improving customer demand across all regions and sectors. This has been delivered through excellent growth in our existing businesses, successful delivery from our recent acquisitions and continued success in building our Life Sciences platform. With the strategic review of our Performance Technologies business well underway, we continue our transition to becoming a pure play consumer facing ingredients company,’ said chief executive Steve Foots.
Croda said it expected the strong underlying growth seen in the first to continue in the second. Plus, the addition of lipid systems into the business prompted it to raise its sales guidance for the full year by ‘at least’ $200 million.
‘We now expect 2021 full year adjusted profit before tax to be significantly ahead of current expectations. Subject to there being no material change in current market conditions, we expect a similar phasing of profit between the first and second half periods as seen in previous years,’ Croda said.
Adjusted free cashflow of £42.7 million was some 47% lower than the year before. Still, Croda said it had raised its interim dividend by 10% to 43.5p from the 39.5p paid out last year to maintain its almost 30-year track record of consistently raising its payout.
Firstgroup confident in growth prospects after tough year for travel
Firstgroup reported lower revenue and profits in its recently-ended financial year following an extremely tough period for travel operators and the sale of most of its US operations, but said the company has been transformed and positioned to deliver ‘sustainable, profitable growth’ going forward.
Firstgroup also announced that its chief executive Matthew Gregory has handed in his resignation. Chairman David Martin is taking up an executive role whilst a successor is found.
Firstgroup shares were down 2.1% in early trade this morning at 83.0p.
Revenue in the year to the end of March fell to £6.84 billion from £7.75 billion the year before. The sale of First Student and First Transit in the US contributed to that decline but so did the reduction in travel during the year because of lockdowns.
Adjusted pretax profit plunged to £39.4 million from £109.9 million the year before, while adjusted EPS dropped to 2.4p from 6.8p. The results were better on a reported basis as it turned to a pretax profit of £115.8 million from a £299.6 million loss the year before with EPS of 6.5p compared to a 27.0p loss, benefiting from the proceeds booked from asset sales during the year.
The sale of First Transit and First Student prompted Firtgroup earlier this year to announce it is returning £500 million to shareholders with a payout of 41.0p per share. Investors are hoping there is more to come since Firstgroup said it could return more cash depending on how much of the earnout if makes from First Transit, a release of escrow funds earmarked for its pension plan and its ability to leverage more debt as market conditions improve.
Although the year has been tough for the travel industry, Firstgroup said it is a ‘transformed company’ that was pursuing strong growth prospects.
It said the economic and regulatory support for bus travel has not been this strong in decades, paving the way for its to significantly improve margins going forward. It said UK bus passengers are currently running at about 60% of pre-pandemic levels. Meanwhile, its rail division has seen its ‘balance of risk and reward transformed’ by the new contracting structure introduced by the government in response to the pandemic.
Firstgroup said it expects its cash generative operating model to start supporting regular dividends in 2022.
Games Workshop remains as popular as ever during the pandemic
Games Workshop delivered a stellar performance in a tough year as demand for the company’s niche products continued to grow around the world.
Revenue soared to £353.2 million in the year to the end of May from £269.7 million the year before, beating the company’s guidance and coming in ahead of analyst expectations. Pretax profit surged to £150.9 million from just £89.4 million, also coming in better than forecast.
Games Workshop shares were down 3.3% in early trade this morning at 11435.0p.
The performance is highly impressive considering its 500-plus retail stores were closed for the vast majority of the period thanks to lockdown, but demand for Warhammer miniatures showed no sign of waning. Sales to other stores wanting to stock its products around the world more than offset a fall in sales in its own retail stores, while its online channel also helped. Around 25% of all sales were made online during the year compared to 19% the year before.
In fact, the company is raising plastic production capacity by adding five new lines by this August and a further eight lines by January 2022, which will be followed by new paint filling equipment being installed. It has also bought new land adjacent to existing sites to ensure it has whatever space it needs as it expands.
Games Workshop had already hiked its dividend ahead of the results today, with investors set to receive 235p for the year compared to just 145p the year before. It also released a separate statement today declaring another dividend worth 40p per share, which will be paid in early August.
Greencore ups expectations as sales return to pre-pandemic growth
Greencore Group raised its expectations for the full year this morning after revealing a steadily-improving picture resulted in sales exceeding pre-pandemic levels in June.
The company, which makes a variety of convenience foods in the UK, said pro-forma revenue was up 53.1% year-on-year in the third quarter to June 25 at £360.2 million, but said this was still 2.8% below pre-pandemic levels. However, the situation changed in June, with sales rising 1% higher than pre-pandemic levels.
Greencore shares were up 1.8% in early trade this morning at 132.0p.
Third-quarter sales of food-to-go jumped over 91% year-on-year to £236.5 million, but remained 9.3% below pre-pandemic levels. Its other convenience food saw a more mild 5.9% rise in revenue to £123.7 million and they remain well above pre-pandemic levels.
Greencore said revenue momentum has ‘remained encouraging’ in the first three trading weeks of July.
More importantly, Greencore said it returned to an adjusted operating profit in the quarter, in line with its expectations.
‘Notwithstanding the supply chain and labour challenges impacting the broader UK food industry at present, the group is confident in its ability to deliver strong year on year profit and cashflow progression in the second half of the year,’ Greencore said.
The company is now aiming to deliver annual adjusted operating profit of between £36 million to £40 million. Previously, it had said profits would be above the £32.5 million delivered in the last financial year.
It also said net debt excluding lease liabilities should be below £240 million by the end of the financial year, comfortably bringing net debt to Ebitda below 3x.
‘We are encouraged by the improvement in revenue, profitability and cash flow momentum in Q3 and the early weeks of Q4. Against the backdrop of the UK economy reopening fully, we are rebuilding our economic model effectively and sustainably with all stakeholders, supported by our long-standing customer relationships and further enhanced by the new business wins we have secured this year,’ said chief executive Patrick Coveney.
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