News

KMD Brands says it expects significantly lower sales in the fiscal first half, reflecting weak consumer sentiment.

The group forecasts sales to decline 14.5 per cent year over year to $469 million amid lower expected sales across all three brands.

The company forecasts Rip Curl and Kathmandu’s sales to fall 9.2 per cent and 21.5 per cent, respectively. It also estimates a 20 per cent decrease in Oboz’s sales.

Meanwhile, the group’s gross margin is anticipated to remain resilient at 58.8 per cent.

“Rip Curl and Oboz are recycling record sales last financial year and while revenues from the direct-to-consumer channel for these brands are showing single-digit declines, the wholesale channel has been more challenging as wholesale accounts reduce inventory holdings,” said KMD Brands CEO and MD Michael Daly.

“Kathmandu has experienced softer trading results since June 2023. A combination of weaker consumer sentiment, the warmest winter on record in Australia and the brand’s resilience on winter-weight products has resulted in a disappointing first half.”

The company is optimistic that the Rip Curl and Oboz wholesale channels will improve next year.

In addition, it is looking forward to a better performance for Kathmandu in the second half of next year as the company will launch new products, quick-to-market programmes, increased visual merchandising, more personalisation through Out There Rewards, and an expanded third-party brand strategy.

Retail Food Group swung to a net income despite lower revenue in the fiscal first half, thanks to an increase in average transaction value and the company’s acquisition of Beefy’s Pies.

RFG’s net profit stood at $5.1 million while revenue fell 1.4 per cent year over year to $61.9 million during the six months ended December 29 last year.

Earnings before interest, taxes, depreciation, and amortisation soared 121.3 per cent to $11.6 million.

The cafe, coffee, and bakery segment’s domestic network sales slid 0.1 per cent to $180.9 million while same-store network sales climbed 3.2 per cent to $168.8 million.

The quick-service restaurant segment’s domestic network sales declined 5.5 per cent to $73.9 million while same-store network sales dipped 1.3 per cent to $70.7 million.

RFG opened 70 new outlets during the first half. In addition, the company completed in December the acquisition of Beefy’s, which contributed an EBITDA of $100,000 in 19 days.

Beefy’s is set to open its first new outlet under RFG in the second half, replacing a previous high-performing closed Brumby’s outlet.

“We understand the challenges in our QSR segment and have actions in place to drive frequency and attract new customers through product innovation, investment in technology and value,” said RFG CEO Matt Marshal.

For the full year, RFG forecasts underlying revenue to grow 8 per cent to 16 per cent to between $110 million and $118 million.

Underlying EBITDA is expected to range from $28 million to $32 million, up 11 per cent to 26 per cent.

Australia’s leading recycling company Visy has unveiled a major $50 million upgrade to its glass recycling factory in Laverton, Melbourne, raising its capacity to up to 200,000 tonnes of glass each year.

The Laverton plant is crucial in Visy’s goal to manufacture new glass bottles and jars made with an average of 70 per cent recycled content. A glass container made with recycled content requires up to 30 per cent less energy than an original container.

To keep more glass in the circular economy, the plant will install 20 advanced cameras to sort glass down to three millimetres in size.

In 2021, Visy chairman Anthony Pratt committed to spending $2 billion on reducing landfills, cutting emissions, and creating manufacturing jobs for Aussies. The upgrade of the Laverton plant was part of this commitment.

“We’re actually in the landfill avoidance because recycling and remanufacturing are important weapons against climate change,” said Pratt.

Using recycled content in glass manufacturing can help lower greenhouse gas emissions, he added.

The a2 Milk Company has upped its annual sales guidance after posting solid first half revenue and earnings growth, and assuring shareholders that key infant formula market China is showing signs of stabilising.

Its ASX-traded shares rocketed to a 10-month high, advancing more than 11 per cent to $5.64 on Monday.

Revenue rose 3.7 per cent to $NZ812.1 million ($865.5 million) in the six months ended December 31 while earnings before interest, tax, depreciation and amortisation gained 5 per cent to $NZ113.2 million, generating an EBITDA margin of 13.9 per cent.

Net profit beat analyst forecasts rising 15.6 per cent to $NZ85.3 million in the half, ahead of $NZ74 million consensus.

A2 Milk boosted its total infant formula sales 1.5 per cent despite a double-digit decline in volume and value in the China – the world’s largest infant milk formula market. A record level of marketing spend at $137 million in the half helped it achieve a top-five China market position.

Sales in China and other Asia markets climbed 16.5 per cent, helping offset a 24.1 per cent fall in Australia and New Zealand because of a change in distribution strategy.

Chief executive David Bortolussi said the group was still focused on China for growth, which now represents 80 per cent of total branded sales. Although revenue guidance was upgraded, a2’s EBITDA margin is expected to be broadly in line with last year.

“We have improved our guidance for revenue going from low single digits, to the low to mid-single digits over the full year. The reason that we’ve done that is partly associated with China label performance,” he told The Australian Financial Review.

He said the transition to its new China label product has gone better than expected. Last year, a2 Milk’s manufacturing partner secured approval to sell tins made to China’s new standards, removing a major concern for investors. The market for English label formula, which is cheaper to produce, is also improving as Chinese mothers trade down.

China’s birth rate was better than expected in calendar 2023 even as the number of newborns fell 5.7 per cent to 9 million births, a record low. “We’re still of the belief that the 2024 birth rate will be higher than calendar 2023,” Mr Bortolussi said.

He said family planning had been delayed during COVID-19, and marriages were trending upwards.

Mr Bortolussi is determined to gain access to more China label registrations, which will enable a2 Milk to grow its portfolio in China. Major players in the industry have between 10 and 20 registrations while a2 Milk has one.

In Australia and South-East Asia, a2 Milk will this half launch the first new English label formula product in 10 years, called a2 Gentle Gold, aimed at the premium segment. The range is developed at its Mataura Valley Milk processing plant and a new commercial supply chain partner, Yashili NZ, a subsidiary of China’s Mengniu Dairy.

Mr Bortolussi pushed out the company’s medium-term revenue ambition of $NZ2 billion by 2026, to 2027 or later, given China – while stabilising – is taking longer to recover than he thought when the goal was set in October 2021.

Another key priority for a2 Milk is getting its Mataura Valley Milk processing plant profitable by 2026.

Synlait, a2 Milk’s manufacturing partner, suffered another poor trading update this month, but Mr Bortolussi said a2 Milk does not have any major operational concerns, nor is he aware of any pending capital need by the troubled New Zealand-based group in which it owns nearly 20 per cent.

Shoplifting is on the rise with reports of a 100 per cent increase in the theft of meat between 2022 and 2023.

Chief industry affairs officer at the Australian Retail Association, Fleur Brown, says meat theft is on the rise.

“Some of the recent data shows that 60 per cent of in-store thefts are now being conducted by one cohort of coordinated theft professionals,” she told Tom Elliott.

Operator of Morgans IGA, Neale Morgan, says theft has gotten worse since COVID.

“Theft is costing us … around one per cent … It’s not just meat and it’s been going on for years,” he said.

Treasury Wine Estates’ net profit dipped as revenue remained flat in the fiscal first half amid a decline in premium and commercial portfolio sales.

The liquor company’s net profit fell 11.4 per cent to $166.7 million while revenue stood at $1.28 billion.

Earnings before interest, tax, SGARA and material items plummeted 5.8 per cent to 289.8 million.

The Penfolds segment’s revenue increased 9.2 per cent to $448.1 million but Treasury Americas’ sales slid 4.3 per cent to $447.7 million. Treasury Premium Brands’ revenue went down 4.5 per cent to $388.5 million.

“Penfolds continue to perform and strengthen whilst Treasury Americas has made significant progress in reshaping its portfolio focus with continued growth of its luxury brands now supported by the acquisition of Daou in December,” said Tim Ford, CEO of Treasury Wine Estates.

“The premium wine category, whilst resilient, is highly competitive and we continue to innovate and invest to achieve the goal of outperforming the category and importantly attracting new customers to wine.”

Ford said the company is confident to achieve mid-high single-digit earnings for this fiscal year.

Global cocoa prices have hit a new record high due to poor harvests in West Africa, where the bulk of the global supply is grown.

The cost of cocoa – the key ingredient for making chocolate – has roughly doubled since the start of last year, and prices on the New York commodities market reached a new historic high of $9010.59 (US$5874) a ton last Thursday (February 8).

According to analysts, the El Niño weather phenomenon has caused drier weather in Ghana and Ivory Coast – the world’s two biggest producers of cocoa beans – leading to smaller crops. 

“The traders are worried about another short production year, and these feelings have been enhanced by El Niño threatening West Africa crops with hot and dry weather,” said Jack Scoville, an analyst at Price Futures Group.

Meanwhile, according to Nasdaq, the intensity of this year’s seasonal Harmattan winds in West Africa is drying out cocoa fields and boosting cocoa prices on concern that cocoa yields for the region could be reduced and curb global cocoa production even further. 

Meanwhile, data from the Ivory Coast government showed the nation’s farmers shipped 1 million metric tonnes of cocoa to ports from October 1 to January 28, down 36 per cent year on year.

The Ivory Coast’s cocoa regulator, Le Conseil Cafe-Cacao, has halted forward sales until it has a clear picture of expected cocoa production in the Ivory Coast, further adding to the tumult of the region’s cocoa supplies.

Maxar Technologies’ data shows that the total precipitation in West Africa, since the rainy season started May 1, has been more than double the 30-year average, and this has contributed to unfavourable growing conditions and crop disease on West African farms over the past year, curbing cocoa production and fuelling a scorching rally in cocoa prices. 

The rising prices are already filtering through to consumers and squeezing major chocolate makers.

Cadbury parent Mondelez says its sales volume significantly dropped this fiscal year, while Hershey saw sales decline last year.

“While historic cocoa prices are expected to limit earnings growth this year, we believe our strong marketing plans, innovation and brand investments will drive top-line growth and meet consumers’ evolving needs,” said Michele Buck, president and CEO of The Hershey Company, in a recent earnings report.

Farm cooperative Cobank predicts that cocoa prices will likely remain high until a new African crop comes to the market later this year.

As a result, confectionery manufacturers still recovering from the impact of increased sugar prices will have “no choice” but to raise the prices of chocolate products.

“The cocoa issues come at a particularly challenging time for manufacturers, considering the increase in sugar prices they’ve been coping with over the past three years,” says Billy Roberts, senior food and beverage economist for CoBank.

“While sugar prices have recently retreated, cocoa futures prices remain near record levels and show little sign of any significant movement. That could lead to a further erosion of chocolate volume sales and impact dollar sales as well.”

A significant spike in meat theft from supermarkets has been linked to organised retail crime groups who are “swarming” shops.

Meat theft increased by 85 per cent between 2022 and 2023, according to data from retail crime intelligence platform Auror, which works with companies such as Coles, Bunnings and Woolworths.

There were more than 67,000 incidents of meat theft recorded on the platform nationally last year. Pork was the most popular meat to steal, with thefts increasing by 35 per cent, followed by lamb at 31 per cent and beef at 15 per cent.

Auror chief customer officer Rhod Thomas said the majority of retail crime was perpetrated by organised, professional individuals – 60 per cent of in-store thefts were conducted by just one cohort.

“These people are stealing for a day job – literally putting the uniform on to go steal every day, hitting multiple retailers,” he said.

The groups have specific high-value items they target depending on the ability to resell, such as liquor, baby formula, manuka honey and meat, he said.

Thomas said Auror shared with local police its data on perpetrators, locations hit and items stolen. This information, for example, led to Victoria Police arresting a man driving with $2000 worth of lamb, salmon and prawns stolen from Coles in Cairnlea in northwest Melbourne in 2022.

Australian Retail Association director Paul Zahra said nearly half of retailers reported a rise in organised crime in the association’s latest membership survey.

The ARA estimates shoplifting costs retailers more than $9 billion a year. It defines organised crime as involving two or more people who conspire to steal retail merchandise, intending to resell the items for profit.

“We hear of plenty of anecdotes from our members of criminals who swarm shops and take what they want to onsell in various marketplaces,” he said.

“Unfortunately, violence is often associated with these crimes and can add to the cost by way of staff injuries and well-being issues as well as damage to stores and other property.”

Zahra said retailers were increasingly using technology to combat shoplifting, but this was hurting smaller family businesses unable to invest in extra security measures.

Retail Crime Prevention Australia director Sebastian Brown said pensioners struggling with the cost of living also played a part in the increase in grocery theft as inflation hit those on fixed incomes hard.

He said some turned to shoplifting, hiding stolen goods in their bags or clothes, or under blankets on mobility scooters. Others were buying stolen goods from professional shoplifters, who steal specified items.

“[Shoplifters] target the older generations and say, ‘I can get this for you for this price,’” he said.

Neal Morgan, who operates five IGA supermarkets in Melbourne, said theft has hit the highest level in the stores’ 50-year history.

Some people were stealing for themselves and others were stealing to sell or trade, he said, and shoplifters were becoming more brazen.

“It’s almost like they think they’re entitled to just walk in and help themselves to anything on the shelf,” he said.

Meat has become a major target, he said, with some thieves taking entire shelves worth of stock minutes after it had been placed.

Morgan said a man allegedly filled up a cooler bag with more than $100 worth of stolen cuts from his Melton store last week. This masthead is not implying the man is part of an organised crime group.

A spokesperson for the NSW Police said police worked closely with shopping centre management, loss prevention officers and others to run regular, high-visibility proactive operations targeting retail theft.

“Retail theft continues to cost the industry billions of dollars every year, which is why NSW Police remain committed to cracking down on those who attempt to take goods without paying for them, this sort of criminal behaviour will not be tolerated,” the spokesperson said.

Quadrant Private Equity is nearing a sale of Superior Food Group, the food services distribution business that it placed on the market in December.

The private equity firm is in advanced discussions with a buyer for Superior Food, pitched last year as a defensive opportunity to big-name sponsors like Bain Capital and Blackstone. But Street Talk can reveal another party is in pole position – ASX-listed grocery wholesaler Metcash.

The Doug Jones-led group flagged in its December half-year results that it had a “significant pipeline of strategic growth opportunities” and “M&A”. Of note, it was in talks to acquire Superior Food alongside Coles in 2022 but bowed out of the sale process.

Metcash is understood to be advised by Barrenjoey Capital Partners and Herbert Smith Freehills. Stanton Road Partners tended to Quadrant. A deal has not yet been signed but is “well advanced,” sources said.

This is the third time Quadrant has shopped Superior Food around – the first in 2021 after the competition regulator decided to approve Woolworths’ entry into the sector via PFD Food Services and again in 2022, asking banks to pitch for a potential initial public offering. However, both processes were interrupted by the COVID-19 pandemic and associated lockdowns and then Russia’s invasion of Ukraine, which froze markets.

Prospective buyers have been told Superior Food, which supplies ingredients, packaging and cleaning items to restaurants, cafes and aged care homes, is on track to make EBITDA in the 2025 financial year of around $55 million. That would imply a sale price north of $500 million, based on recent transaction multiples.

Woolworths took a $552 million chunk of PFD in 2020 about 11-times PFD’s pre-pandemic earnings of $57 million. The other big player in the space is Bidfood Australia.

An exit would end Quadrant’s eight-year association with Melbourne-based business. The buyout firm invested in August 2015, swiftly merging it with Sydney’s NFD Food Services to create the third-biggest food services group in Australia. Its clients include fast-food restaurants like Domino’s, Hungry Jack’s and Subway and corporates like the Royal Automobile Club of Victoria and Health Purchasing Victoria.

Quadrant executive chairman Chris Hadley and managing director Alex Eady sit on Superior Food’s board. A spokesperson for Metcash declined to comment. Metcash has a market capitalisation of $3.45 billion and last traded at $3.64.

Australia’s wholesale food service sector has provided rich pickings for private equity. Adamantem, which owns Boost Juice and Betty’s Burgers, has invested in wholesale food packaging supplier PAC Trading while PAG Asia Capital, best known in Australia for owning Oporto and Red Rooster parent Craveable Brands, acquired Patties Foods and Vesco Foods just over 18-months ago.

Burger brand Grill’d is partnering with former tennis World Number 1 and three-time Grand Slam champion

Ash Barty to launch a limited-edition range of Barty Burgers.

The burger chain will also donate $100,000 to the newly launched Ash Barty Foundation, through its Local Matters program.

The goal is to make a positive impact on the lives of young Aussies through sport and education initiatives.

Ash Barty said “Promoting physical activity and wellbeing amongst young people is incredibly important to me. I’ve been given some amazing opportunities in my tennis career so to help create pathways for kids to participate and enjoy sport is invaluable.

“I’m grateful to Grill’d for supporting my foundation and hope that together we will be able to make a difference to many young Australians.”

Grill’d founder and managing director, Simon Crowe, said “We are honoured to be collaborating with one of Australia’s most accomplished athletes on this initiative. As a role model to millions of Aussie kids and actively involved in community work, having Ash front this campaign is a perfect match to Grill’d’s local community and charitable efforts.”

Grill’d customers also have a chance to win an exclusive Ash Barty tennis experience for two in Queensland.

The Barty Burgers range features a choice of chicken or beef patties, a mini pack including chips and a drink, and two meal packs.