City round-up: Unilever; Strix

Second-quarter sales at Unilever fell much less than expected as strong growth in North America helped to offset the hit from coronavirus lockdowns.

The Anglo-Dutch maker of Dove soaps and Knorr soups, headed by CEO Alan Jope, said that underlying sales fell 0.3% in the three months ended June 30, compared with analysts’ mean forecast for a 4.3% drop.

That was still the first decline in quarterly sales since the third quarter of 2004, according to Jefferies analysts.

The consumer goods group also said that after exploring options for its £2.73bn-a-year tea business, it had decided to keep its operations in India and Indonesia and partnership interests in ready-to-drink tea joint ventures.

The rest of the tea business will be separated into an independent entity, it added.

While shoppers have been buying more groceries in coronavirus lockdowns, that has been offset by a plunge in demand for products sold at restaurants, schools, cinemas and outdoor venues, many of which have been closed.

Unilever relies, in particular, on impulse purchases of ice cream brands such as Magnum and Ben & Jerry’s during May and June, which typically account for 50% of its out-of-home sales in the second quarter, according to Societe Generale analysts.

In the first half of the year, Unilever said food service sales declined by nearly 40% and out of home ice cream by nearly 30%. But e-commerce sales leapt 49%.

North America also stood out, with growth of 7.3%.

Unilever has several operations in the North West, including a home and personal care manufacturing site at Port Sunlight, Wirral, a detergents plant in Warrington and a tea making site at Trafford Park in Greater Manchester.

The Warrington detergents plant is earmarked for closure later this year, with the loss of more than 100 jobs, following a strategic review.

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Business resilience is a much sought-after attribute in the current economic climate and Unilever has certainly got the right ingredients.

“While it failed to deliver any sales growth on a group basis during its first-half period, its performance was considerably better than expected.

“Analysts had forecast a 7.4% drop in second quarter sales, yet Unilever delivered a mere 0.3% decline.

“High demand for hygiene products helped make up for a decline in food and drink sales.

“While people at home were busy ordering ice cream and tea bags, Unilever suffered from a reduction in demand from cafes, bars, restaurants and ice cream vans.

“The overall stability in its business triggered a big share price rally, helped by a large increase in free cash flow which is the cash generated from operations minus the money it needs to reinvest in the business to keep it competitive.

“A separation of most of its tea business provides additional excitement, although that won’t play out until the end of next year.

“In a world where investors have been obsessed with growth, one might have thought Unilever’s pedestrian performance would have gone down like a cup of cold gravy.

“However, resilience is a highly-desired characteristic and the latest trading update is likely to attract a lot of interest from people who had previously dismissed the company as being too boring.”

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Mark Bartlett, chief executive of Strix (Credit: Twitter / Strix Group)

Strix, the Isle of Man group which makes kettle safety controls, reported a “resilient” first half performance in the six months to June 30, today, aided by a marked recovery and solid performance in June.

It said it has strong order book visibility for July and August and continued to prudently invest in compelling growth opportunities.

It is on track to deliver 14 new products this year, while the external construction of its new manufacturing operations in China are now complete.

The group expects to report full year adjusted profit after tax in line with the previous financial year (£28.9m), it said.

The business remains highly cash generative and maintains a strong balance sheet. As at June 30, 2020, net debt was £36.9m, approximately £6m lower than budgeted for this financial year, having successfully implemented a range of efficiency measures and strategic initiatives.

Following completion of the £60m revolving credit facility with RBS International and Bank of China in May, the group has improved financial flexibility for the medium term.

This places Strix in a strong position and enables a disciplined approach to investment, so that it can emerge from this crisis well-positioned for a market recovery.

Chief executive, Mark Bartlett, said: “Strix has delivered a resilient performance in the first half which is testament to the robustness of the business.

“It has now started to see signs of a marked recovery with a solid performance in June and visibility of a strong order book for July and August as lockdown conditions have begun to ease globally.

“This makes us cautiously optimistic about the demand for our products in the second half and is consistent with improving global macro-economic forecast trends.

“During this period, we have successfully implemented a range of efficiency measures and strategic initiatives to mitigate the impact of the pandemic on the full year profit forecast which we now expect to be in line with the previous financial year assuming no significant increase in further lockdown restrictions being imposed.

“This has been done whilst continuing to invest in compelling growth opportunities and we remain on track to deliver 14 new products this year, as well as the new manufacturing operations in China becoming fully operational in August 2021.

“This will ensure that Strix emerges from this crisis well-positioned to capitalise on a market recovery and an anticipated acceleration in demand.”