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French dairy giant Danone (BN) has cut its growth targets for 2020 amid ‘volatile and uncertain’ global economic conditions and the potential impact of the coronavirus outbreak.

Posting its annual results this morning, Danone cut its like for like growth forecast to between 2%-4% from its previously stated guidance of 4%-5%.

The company said: “Danone assumes that economic conditions in 2020 will remain particularly overall, including specific contextual difficulties in a few major markets including the CIS and Argentina, with an additional pressure on the world economy since the beginning of the year related to the COVID-19 outbreak that began in Wuhan in China last December. “

In particular it pointed to the effect on water sales in China, which it estimates will cost it €100m sales in the first quarter and bring its Q1 sales back to broadly flat.

“While we cannot currently predict the duration and extent of the impact of COVID-19, we remain extremely vigilant and are closely monitoring the situation every day, working hand in hand with the local authorities.”

It also cut guidance for its recurring operating margin to 15% from 16%.

For 2019, sales grew by 2.6% on a reported and like for like basis to €25.3bn, helped by 4.1% growth in Q4 on a like-for-like basis.

Sales growth including a negative scope effect (-1.0%), mainly reflecting the deconsolidation from April 1st of Earthbound Farm, a positive impact of currencies (+0.7%), as well as a +0.4% organic contribution of Argentina to growth.

Danone’s recurring operating income stood at €3.8 bn. The recurring operating margin reached 15.2%, up 76bps on a reported basis.

On a like-for-like basis, recurring margin increased by 71bps driven by gross margin improvement - as an outcome of the continued portfolio optimisation efforts and focus on efficiency offsetting the strong inflation on raw material.

However, total net income fell 17.9% to €1.93bn.

Chairman and CEO Emmanuel Faber commented: “2019 has been a year of strong progress for Danone both in terms of the delivery and the transformation of our company. The sequential acceleration of our business quarter after quarter is evidence that we are in the right direction on sustainable profitable growth, while navigating multiple headwinds.

“We end this five-year period of our Danone 2020 plan with a recurring EPS cumulative increase of 50% , a financial deleverage one year ahead of our plan, and a business that embraced the food revolution, leading on flexitarian proteins, organic food and regenerative agriculture.

“We start this year under the uncertain clouds of the coronavirus. Our priority is on the health and safety of our employees, business partners, customers and the communities in which we operate, hand in hand with the work of authorities. I would like in particular to commend and deeply thank our teams in China for their incredible commitment to their mission serving relentlessly families, parents, babies and elderlies despite the difficult conditions. Let me express my support and empathy for the difficulties and challenges they face and my confidence that life will return to normal in China and beyond.”

Faber also announced a “€2 billion climate acceleration plan”, which he said in the next three years will “further transform our agriculture, energy and operations, packaging, and digital capabilities so that we will leverage fully our climate action to generate resilient growth models for our brands”.

Danone shares are up 2% to €68.92 in early trading.

Morning update

Diageo (DGE) has said this morning that the COVID-19 outbreak will hit its 2020 net sales by £225m-£325m and its organic operating profit by £140-£200m.

It said the situation is dynamic and continues to evolve and these ranges exclude any impact of the COVID-19 situation on other markets.

It said bars and restaurants have largely been closed in China and there has been a substantial reduction in banqueting. As the majority of consumption is in the on-trade, its have seen significant disruption since the end of January which we expect to last at least into March.

Additionally, outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has led to events being postponed, a reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption.

Finally, the outbreak has caused a significant reduction in international passenger traffic, especially in Asia.

It does not expect these situations to improve until towards the end of its fourth quarter.

Travel retailer SSP Group (SSPG) has also warned of the impact of the Coronavirus on currency trading.

It said that while trading in the UK, Continental Europe and North America, which together account for approximately 86% of Group revenue, has been in line with expectations, the Rest of the World, which accounts for 14% of group revenue and comprises the Asia Pacific region, India and the Middle East, has seen an impact from the COVID-19 virus.

In China we have seen sharp declines in both domestic and international air passenger numbers, which are currently running 90% lower YOY. In Hong Kong passenger numbers are 70% lower YOY and across a number of other Asia Pacific countries, including Singapore, Thailand, Taiwan and the Philippines, passenger numbers are between 25% and 30% lower. Elsewhere, we have also seen some impact at our airports in Australia, as well as at major travel hubs in the Middle East and India, although to date this has been less severe.

In response to the sharp fall in sales in China and across the Asia Pacific region, SSP Group has been working with clients to maintain appropriate service levels, whilst taking all the necessary action we can to reduce costs, including the temporary closure of units and reduced operating hours.

In terms of the financial impact of COVID-19, our expectation is that for the month February sales across the Asia Pacific region will be approximately 50% lower YOY. Together with the impact in the Middle East and India, this is expected to reduce overall group revenue in February by approximately £10m - £12m, with a corresponding reduction in operating profit of approximately £4m - £5m.

McColl’s (MCLS) has “stabalised” its performance and announced an “encouraging” start to its new financial year after posting its 2019 financial results.

Full year revenue was down by 1.8% to £1.22bn, primarily driven by the closure or divestment of 120 under-performing newsagents and smaller convenience stores as part of our store optimisation programme.

Like for like sales were back level for the year compared to a 1.4% decline in 2018, but were affected in the summer months in particular as the whole sector suffered from strong year-on-year comparatives coupled with colder weather this year and lower consumer confidence.

“This was a relatively good performance and a recovery from 2018 levels which were impacted by the collapse of Palmer & Harvey,” the group said.

Tobacco continues to perform strongly, benefitting from inflation as a result of manufacturer and duty rises. Other traditional categories such as news and confectionery, in which it said it still over-indexes as a result of heritage, continue to steadily decline and impact LFL sales.

LFL sales were supported by good growth in beers, wines and spirits, where performance is improving following our range review in the first half of the year.

Gross margin before adjusting items was broadly level at 25.9% and improved in the second half, year on year, as its continues to make progress, both through self-help initiatives such as improved promotional investment planning, and by working together with Morrisons.

Overall adjusted gross profit fell by 2.1% to £315.7m reflecting the decline in total sales.

The retailer also said sales in early 2020 have been “encouraging”, with the group delivering a LFL sales improvement of 0.5% for the 11 week period ended 9 February 2020. Total sales decreased by 4.2% reflecting the annualisation of the ongoing store optimisation programme.

“2020 will be a transitional year with the implementation of our strategic change programme, as outlined below, and as a result we expect adjusted EBITDA for FY20 to be broadly in line with FY19,” it stated.

Discussions with its lending banks to amend and extend its existing debt facility are “well advanced”, with an announcement expected shortly.

CEO Jonathan Miller commented: “We have stabilised the business and refocused on retail execution in 2019, in line with our key priorities for the year. Against challenging trading conditions we have made good operational progress, whilst reducing debt and making appropriate levels of investment.

“Looking ahead to FY20, we are embarking on a strategic change programme, refining our model and better tailoring our offer to the customers and communities we serve, using the learnings to build the foundations for future growth.

“The fundamentals of the convenience sector remain strong and, with our improving customer proposition, I am confident in delivering sustainable returns for shareholders over the long term.”

Finally, Vimto producer Nichols (NICL) has posted growth in sales and profits for the year to 31 December 2019.

Total group revenue increased by 3.5% to £147m, with both UK and International businesses contributing to growth.

UK sales grew by 2.5% to £117.5m, driven by the Vimto brand, which increased sales by 0.8% despite very strong prior year comparatives when sales were up by 12.9%.

The performance of its key brand was primarily driven by the Still category where sales of Vimto dilutes grew by 15% and continued to gain market share.

Out of home sales increased by 8% to £45.5m and now contribute 31% of group revenues, driven driven by the acquisition of one of its post mix and coffee distributors (Adrian Mecklenburgh) and the growth of frozen beverages into the cinema channel.

International sales grew by 7.5% to £29.5m. Sales fell back to £13m in Africa, compared to £13.6m in the previous year, but sales to the Middle East grew by 20.6% to £11.6m against softer prior year comparatives. This performance reflects a return to normal levels of concentrate sales during the year.

Elsewhere, in International regions, there was good growth in the USA, which is primarily a Stills market (+23.1% to £1.4m) and Europe which is primarily a Carbonate market (+5.2% to £3.3m).

Group profit before tax was £32.4m for the year, an increase of 2.1% compared to the prior year.

Non exec chairman John Nichols commented: “I am pleased to report on a year of further progress during which Nichols achieved continued revenue growth in both our International and UK businesses. As a result, the Group delivered year-on-year increases in profit before tax and earnings per share and we are today proposing a final dividend of 28.0 pence per share, resulting in a 6.0% increase in the full year dividend.

“The group’s performance demonstrates the strength of our diversified business model, which provides a strong platform to deliver continued growth.”

On the markets this morning, the FTSE 100 has slumped a further 1.5% to 6,915.2pts - falling below 7,000pts for the first time in more than a year.

SSP Group is down 3.5% to 576p after this morning’s update, with Diageo down 1.7% to 2,910.5p.

Nichols has edged up 0.3% to 1,383.9p and McColl’s has slumped 15.7% to 35.9p.

The other biggest fallers include Finsbury Food Group (FIF), down 5.8% to 97p, WH Smith (SMWH), down 4.1% to 2,110p and FeverTree (FEVR), down 3.5% to 1,346p.

The few risers include Cake Box (CAKE), up 1.3% to 162p, Sainsbury’s (SBRY), up 1.1% to 204.2p and Hotel Chocolat (HOTC), up 0.6% to 405p.

Yesterday in the City

The FTSE 100 sank a further 1.9% to 7,017.9pts yesterday as fears over the global spread of the coronavirus continue to hammer stocks.

Amongst the major global fmcg players, worst hit were Associated British Foods (ABF), down 4.4% to 2,430p, Reckitt Benckiser (RB), down 3.1% to 6,053p and Coca-Cola HBC (CCH), down 3% to 2,646p.

The UK supermarkets suffered again, with Morrisons (MRW) down 3.3% to 176.9p, Tesco (TSCO) down 2.5% to 243p and Sainsbury’s (SBRY) down 2.4% to 202p.

Other shares hit yesterday included Premier Foods (PFD), slumping 9.8% to 30.5p, Cake Box (CAKE), down 7.3% to 160p, B&M European Value Retail (BME), down 4.1% to 342.6p, Greencore (GNC), down 3.8% to 230.9p, WH Smith (SMWH), down 3.5% to 2,200p and SSP Group (SSPG), down 3.1% to 597p.

The day’s few risers included Hotel Chocolat (HOTC), which posted strong annual growth in sales and profits yesterday and rose 4.6% to 402.5p.

Also on the up were Hilton Food Group (HFG), up 2.9% to 1,050p, Finsbury Food Group (FIF), up 2.5% to 103p and Britvic (BVIC), up 1.5% to 904p.

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