NETHERLANDS: Down economy is the "new reality" - Sligro
- H1 Net profit up 2.3%
- Sales lift 1.5%
- Focus on cost cutting
Sligro sees "modest" H1 profit gains
Dutch retailer Sligro has suggested that the depressed economic environment represents a "new reality" and, with little chance of improved conditions, the company is focused on cutting its cost base to drive profits.
"We look upon the present economic climate as the new reality, with little prospect of change. That means continuing pressure on sales and fierce competition. In this trading environment, our efforts continue to focus on trimming our cost base accordingly. We are fortunate in still having plenty of scope for progress in that area," Sligro said in a trading update this morning (18 July).
Sligro's first-half net profit rose 2.3% to EUR26m (US$34m), the company revealed. Gains were driven by a lift in sales, which rose 1.5%, and the benefit of cost cutting initiatives. These factors more than offset an increase in pension costs of EUR2m.
Commenting on the result, CEO Koen Slippens said that against a backdrop of "low consumer confidence and the general state of the economy" Sligro "can hardly complain about the modest increase in profits".
Sligro did not provide a full-year sales or profit guidance range.
Half-year report Sligro Food Group 2013
Sligro Food Group net profit €26 million
Net profit for the first six months was more than €26 million, up 2.3% compared with the corresponding period in 2012. Sales in the first half of 2013 amounted to €1,229 million, an increase of 1.5%. On a like-for-like basis, sales growth was flat.
Koen Slippens CEO:
‘The effects of the low consumer confidence and the general state of the economy were particularly noticeable in the foodservice market. The weather in the first half of the year certainly did not help either. Against that background we can hardly complain about the modest increase in profits, especially when you consider that pension costs were up by more than €2 million in the first half of the year. Foodservice saw profits fall under the burden of these additional pension costs plus the costs of integrating the business of Van Oers taken over at the beginning of this year. This integration process has now been successfully completed and nearly all the Van Oers customers have signed up to new contracts with Sligro. Food Retail showed robust profit growth, confirming our faith in the long-term strategy embarked on earlier this year.'
x € million Change in %
Revenue 1,229 1,210 1.5
Like-for-like sales growth (0.1)
Like for like growth, EMTÉ 2.6
Gross margin 280 264 6.0
Gross margin as % of sales 22.8 21.9 0.91
Gross operating result (ebitda) 61 61 1.2
Operating profit before amortisation (EBITA) 41 39 5.2
Operating profit (EBIT) 35 34 3.8
Net profit 26 26 2.3
1) Percentage points
The gross margin as a proportion of sales was up 0.9 of a percentage point at 22.8%, with both parts of the business contributing to the increase in approximately equal measure. For Food Retail, the pressure on prices eased while it was mainly the improvement in purchase terms and conditions which made the difference in the case of Foodservice.
Costs as a proportion of sales were up by 1.0 percentage point.
The pension costs connected with defined benefit plans increased by €2.1 million in the first half of the year, to €4.0 million. This was mainly the effect of lower interest rates. There will be a similar pattern in the second half of the year. These higher charges do not affect cash flow as the amount of the pension contributions actually payable does not change.
The increase in expenses is also due to the integration costs of approximately €1 million for Van Oers, increased tax payments and social security contributions, a change in the distribution mix in Foodservice and intensification of the ICT programme.
Overall, the operating profit before amortisation increased by €2 million. As a percentage of sales, this represents a 0.2-point increase.
In Food Retail, the increase in like-for-like consumer sales reported by EMTÉ was 2.6% (Q2 sales were actually down by 0.4% but the underlying sales were up by 0.9% after adjustment for the early date of Easter this year). This means that EMTÉ achieved growth roughly on a par with the market. The operating profit before amortisation of intangible assets improved by €4 million to €9 million, mainly on the back of an improvement in the gross margin.
Foodservice posted like-for-like sales growth in the first half of 0.8% negative (in Q2, the figure was down by 1.4%; adjusting for the calendar effect, however, sales were flat). We estimate that the overall foodservice market shrank by approximately 4% in the first half of the year. Despite a substantial increase in the duty on tobacco products, our tobacco sales fell in the first half, with sales sharply lower in the border regions. Excluding this effect, Foodservice in fact achieved slight like-for-like sales growth.
Overall, Foodservice posted sales growth of €10 million, or 1.3%, with newly acquired Van Oers contributing €17 million to the revenue figure.
The operating profit before amortisation of intangible assets was €2 million down, at €32 million. Excluding the effect of the higher pension costs and the cost of integrating Van Oers, the operating profit before amortisation showed a slight increase. The effect of improved purchase terms and conditions was partially wiped out by the effect of a shift in our distribution channels.
We look upon the present economic climate as the new reality, with little prospect of change. That means continuing pressure on sales and fierce competition. In this trading environment, our efforts continue to focus on trimming our cost base accordingly. We are fortunate in still having plenty of scope for progress in that area.
New VAT rules came into effect for tobacco products on 1 July 2013. This is expected to lead to a fall in sales of approximately €30 million in the second half of 2013. This is an accounting effect that will not affect the profit figure. In the second half of 2013, Van Oers is expected to contribute almost €40 million to Group revenue, making a modest profit contribution at the same time.
As usual, we are not making any firm predictions regarding the profit for the year as a whole.
Our financial position continues to be as strong as ever and careful management of working capital will add to that strength, as was the case in the first half of the year. We do not see any material changes in the risks and uncertainties described in the 2012 annual report.
Original source: Sligro
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