Wessanen’s results exceeded expectations. Group sales grew by 1.1% to € 195.7m (CSS € 192.7m and KBCS € 193.1m). REBIT improved from € 10.9m in 2Q10 to € 11.8m (KBCS € 9.7m) in 2Q11 and EBIT fell from € 9.4m to € 7.4m. Consensus EBIT equalled € 5.8m. EBIT was hit by € 4.4m exceptionals including an impairment loss for Tree of Life UK (sold), a book loss on Kalisterra (sold), partly offset by a release of a restructuring provision at Wessanen Europe Grocery. The main positive surprise came from Wessanen Europe Grocery, the core activity of the group which reported a REBIT of € 6.5m in 2Q11 versus € 6.5m in 2Q10. We were counting on € 5.6m. REBIT margin improved from € 9.0% to 9.9% despite higher marketing and ICT expenses. Divisional EBIT came out at € 6.8m (CSS € 5.5m and KBCS € 5.6m). Sales rose by 7.2% to € 65.9m (CSS € 64.1m and KBCS € 66.0m) or 5.1% organically with volumes up 4.4% and prices 0.7%. There was a negative currency impact of 0.9%.
Wessanen Europe Health Food Stores (HFS) continues to struggle. Sales declined by 5.9% to € 68.9m (KBCS € 70.3m) or 1% below consensus. REBIT fell from € 2.6m to € 2.0m (KBCS € 2.2m) due to lower volumes in France and the Benelux. The division reported an EBIT loss of € 2.7m (CSS € -1.5m and KBCS € -2.4m) versus a positive EBIT of € 1.9m in 2Q10. EBIT was hit by € 4.7m exceptional charges and impairments. The division continues to struggle as competition (e.g. Udea) has become fiercer in the Netherlands (see our Flash dated 15 July). Management expects that the market will grow this year in Germany and the Benelux. France is expected to be stable.
Frozen Foods’ sales declined by 2.8% (-6.0% organically) to € 29.7m (CSS € 29.8m and KBCS € 28.9m) and EBIT fell from € 2.0m to € 1.1m (CSS € 1.5m and KBCS € 1.0m). Volumes declined by 7.5%. Branded volumes rose in Belgium and Dutch retail but private label volumes remained weak and competition fierce. The decline in EBIT is due to higher raw material prices and lower volumes. Revitalising the Beckers brand and clearly distinguishing it from private label offerings remains key.
ABC’s sales rose by 21% (!) to $ 49.9m or by 7.8% in €. Reported sales increased from € 32.0m to € 34.6m (CSS and KBCS € 31.3m). Volumes soared by 21% thanks to the success of ready-to-drink pouches. Production capacity will be expanded further. EBIT rose from € 3.5m to € 4.5m (CSS € 3.2m and KBCS € 3.7m). The REBIT margin improved from 11.3% to 13.0%.This business is up for sale. The solid results should help to obtain a satisfactory disposal price.
Conclusion: The solid results of Wessanen Europe Grocery prove that the group is making further progress in areas such as brand activation, innovations and operational excellence. We anticipate that Frozen Foods will be sold one day. Wessanen Europe HFS continues to struggle but we anticipate that numerous initiatives undertaken to turn around the business will bear fruit. We’ll revise our forecasts upwards. No change to our Accumulate rating.