Danone factory

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Danone has outperformed market expectations as it expanded margins and boosted revenues with price hikes at the expense of volumes. The French group also took a €200m hit as it ‘deconsolidated’ the Russian operations.

Net sales reached €14.2bn in the first six months of 2023, up 8.4% on a like-for-like basis thanks to a 9.4% increase in price, with volumes down 1.1%. The French group reported a 6.4% revenue rise in the second quarter, which was ahead of analyst forecasts.

Recurring operating margin moved 14 basis points higher to 12.2% and operating profits rose 5.8% in the half to €1.6bn.

CEO Antoine de Saint-Affrique called the first half “solid” in a “volatile and challenging” environment.

“These past few months, we made consistent progress on our strategic agenda, further strengthening our core, investing behind our winners and actively addressing our underperformers,” he said. “And while we see green shoots of success across the portfolio - exemplified by the continued performance of International Delight, Aptamil, evian and YoPro, or the encouraging momentum behind Mizone – we know the job is not done.

“We remain, more than ever, focused on building further resilience into Danone, by further stepping up our execution, but also by leveraging increasingly more our science, operations and investments.

“Importantly, the last 18 months’ efforts on restoring the fundamentals are starting to pay: our gross margin has expanded in the first half of the year, which allows us to significantly invest behind our brands while improving margins moderately and delivering healthy free cashflows. In short, we are progressing towards the business model we strive for.”

De Saint-Affrique was optimistic about the future and put annual like-for-like sales growth forecasts at the upper end of the 4-6% guidance.

Following the Russian state taking control of Danone’s essential dairy and plant-based business in the country earlier this month, Danone today revealed it will “deconsolidate” the operations, triggering a €200m cash impairment.

“Danone will continue to investigate the situation to understand the implications of the decisions of the Russian authorities on the ongoing EDP operations of Danone in Russia, as well as on the ongoing sale process,” the group said.

“Danone will continue to provide information on material developments related to the situation of its EDP operations in Russia and keeps investigating how to protect its assets and its rights as shareholder, with a first priority to ensure people safety.”

De Saint-Affrique added: “As we navigate an unprecedented situation in Russia, my very first thoughts go to all our colleagues there.”

Danone has been seeking a buyer for the Russian business since October but the operations were placed under the temporary external administration of the Russian Federal Agency for State Property Management on 16 July.

However, Danone asserted its ownership of the business this morning: “While Danone no longer retains control of the management of its EDP operations in Russia, it remains their legal owner.”

Shares in Danone fell 2.6% to €55.31 this morning.

Morning update

Reckitt lifted by price hikes

Dettol to Durex maker Reckitt Benckiser also boosted first-half revenues with price rises at the expense of volumes.

A 6% like-for-like rise in sales to £7.4bn came entirely from a 10.4% hike in prices as volumes tumbled 4.4%, with second quarter top-line growth of 4.1% driven coming despite a 4.3% fall in volume.

The group also improved gross margins in the half as high single-digit inflation was offset by pricing and efficiencies, with adjusted operating profits broadly flat at £1.8bn year-on-year.

Reckitt’s hygiene division grew sales 3.6% on a like-for-like basis in the first half, with Lysol returning to growth in the second quarter after being held back as it lapped pandemic numbers.

The health arm boosted sales 8.8%, with a small 0.5% rise in volumes, as the over-the-counter portfolio grew by more than 20%. Mucinex, Nurofen, Strepsils, Gaviscon and Biofreeze all delivered double-digit growth in the half.

Nutrition recorded a 5.3% rise in revenues, driven by price increases around the world due to the infant formula supply shortage.

CEO Nicandro Durante said the “strong” performance reflected “continued delivery from the investments we have made” in R&D and innovation.

“The strong first-half performance gives us confidence in our full year targets, despite some tough comparatives in our OTC portfolio and an expected tougher competitive environment in US nutrition in H2.”

Nichols reports ‘encouraging’ first half

Vimto maker Nichols has increased revenues 6.6% to £85.5m in the six months to 30 June, with strong growth overseas.

International sales jumped 25% in the half as all regions experienced double-digit growth, with the Middle East boosted by Ramadan and the US reporting increased brand awareness.

In the UK, the strength of the Vimto brand helped sales increased 4.5% to £43.1m. The group didn’t break down growth into price and volumes but said it remained focused on its value over volume strategy to protect margins.

The out-of-home division saw sales fall 3.5% as expected following a strategic review to reduce activity in the sector, with Nichols incurring a £1.1m exceptional cost as a result.

However, pre-tax profits in the half increased 10.5% to £11.2m.

CEO Andrew Milne said he was “pleased” with an “encouraging” first-half performance, which reflected the strength of the Vimto brand.

“We are mindful that consumer spend is still under pressure from continuing high levels of inflation,” he added. “However, the group’s track record, strong brands and diversified business model, alongside the resilience of the wider soft drinks market, support the board’s confidence in the group’s long-term growth prospects, and that the group’s adjusted PBT for FY 2023 will be in line with expectations.”

British American Tobacco makes further progress on tobacco alternatives

Profits have improved at British American Tobacco as revenues were boosted in the first half by a shift towards vaping.

Sales in first six months of the year increased 4.4% to £13.4bn, but sales from new categories were up 29% to £1.7bn as an additional 1.5 million consumers moved to non-combustibles and took the group’s total to 24 million.

Revenues from non-combustibles now account for 16.6% of the group’s top line.

The new categories also contributed a £201m increase to group profits as losses in the area reduced and moved closer to break even, while higher cigarette prices also contributed to the bottom line.

BAT’s profit from operations on a reported basis was up 61.4% at £5.9bn for the six months - with the group being hit with a £957m impairment charge a year ago related to the transfer of its Russian business.

Recently appointed CEO Tadeu Marroco said: “Having been in my new role for 10 weeks, I’m pleased with the resilient performance of BAT in the first half of 2023 and the renewed sense of energy across the organisation.

“It is a challenging external environment. High inflation and slower global growth are impacting consumers and business. Yet our revenue, profit from operations and earnings are all up.”

Just Eat Takeaway returns to profitability but CFO resigns

Just Eat Takeaway has made a profit in the first half as its core UK & Ireland and Northern Europe divisions returned to growth in the second quarter of 2023.

The food delivery service bounced from a €134m adjusted EBITDA loss a year ago to a profit of €143m thanks to a focus on efficiency and general cost savings, while pre-tax losses in the half reduced from €3.5bn to €317m.

Northern Europe and UK and Ireland returned to year-on-year gross transaction value (GTV) growth of 4% and 1% respectively in Q2.

However, total orders in the half fell 15% year in year, while a higher average transaction value wasn’t enough to stop GTV falling 7% to €13.2bn.

CEO Jitse Groen said: “Since our IPO, our objective has been to build and extend large scale and sustainably profitable positions in our markets.

“With the majority of our orders coming from Northern Europe and UK and Ireland, these two segments returning to growth in the second quarter of 2023 is a key milestone. Encouragingly, UK and Ireland is on its way to a similarly high profit margin as Northern Europe.

“The remainder of the business is also showing improving GTV growth and profitability trends, leading to the company fast approaching its positive free cashflow target.”

Separately, Just Eat announced CFO Brent Wissink is stepping down to “pursue other opportunities” and will resign from the board next May.

The group has kicked off a search to find his successor.

“It has been an honour to have been part of the Just Eat Takeaway.com journey over the past years,” Wissink said.

“Since 2011, when I joined the company, the company transformed from a local Dutch player into one of the world’s leading global online food delivery marketplaces.”

Groen added: “There are always many fathers of success in stories such as ours, but there are only few that actually deserve that title.

“Brent is a clear father of the success of JET, and I am confident that we would have not made it this far without him. I regret to lose him, but of course understand that it is time for Brent to pursue new challenges.”

Morning share movements

The FTSE 100 fell 0.1% to 7,683.96pts as markets opened.

Reckitt saw its shares drop 1.8% to 5,834p on the back of its results, while Nichols jumped 3.5% to 1,034.6p, BAT leapt 2.3% to 2,695p and Just Eat Takeaway soared 6% to 1,461p.

Bakkavor and Naked Wines were also among the early risers, up 4% to 105p and 2.8% to 76.9p respectively.

Losers so far included McBride, down 2% to 33.8p and THG, down 1.9% to 97.2p.

Yesterday in the City

The FTSE 100 nudged up 0.2% to 7,691.80pts yesterday.

On a busy day for fmcg stocks, Unilever shares jumped 4.5% as the consumer goods giant raised annual revenue forecasts by 5% as it reported that price rises helped it boost sales in the first half.

Greencore also saw a 3.9% uplift to 88p after the food-to-go supplier reported a “solid” Q3.

Conversely, catering group Compass sank 4.8% to 2,023.4p despite strong Q3 growth.