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Creightons – a 4:05pm “Trading update”, Uh oh…

By Steve Moore | Friday 9 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Creightons (CRL) has made a 4:05pm Trading update - expected 2018 outturn announcement. I guess it ain’t going to be good then…

“The board of Creightons plc has undertaken a review of this year's performance to date and concluded that sales growth for the year is expected to remain positive at approximately 12%, driven by an increased demand in all divisions of the business; owned brands, contract manufacturing and private label”. Huh - sounds good, results for its half-year ended 30th September 2017 showed revenue growth of 7%... “Much of this growth in sales has arisen from significant and unexpectedly higher order intake in the last few months”. Hmmm, how’s this going to be managed then?...

“This has resulted in demand out-pacing capacities in our factories ahead of planned expansion in manufacturing capacities. Therefore, to ensure consistent and uninterrupted supply to our customers the group has outsourced supply of some branded products lines. This has impacted upon the profit margins of these lines”. Uh oh… “the board has concluded that the full year profit before tax is likely to be marginally lower than last year. Profit after tax will also be impacted by the first full year of full corporation tax charges on profits”.

In its last year the company delivered a pre-tax profit of £1.5 million and post-tax profit of £1.3 million, at this year’s half-year stage it was £1 million (prior year: £0.8 million) and £0.7 million (prior year: £0.7 million) respectively. The half-year also saw, following a 0.23p per share (£0.1 million) prior year full and total dividend, a further (0.15p per share) dividend introduced. However, the progression this suggested looks to now be halted; “we believe that taking account of the interim dividend paid out earlier this year, the dividend for this year will be in line with last year”. This is with “the sales growth is being addressed through accelerated capital expenditure and upskilling in key operational functions”.

This is thus a disappointingly timed announcement of disappointing management of growth – particularly as the half-year results included “we have focused on winning and extending business with key UK retailers which are growing their personal care and beauty market share as well as a realignment of key contract accounts based on margin performance” and specifically identified “production efficiencies” as a ‘regularly monitored’ risk. Additionally, those results showed, despite the reported profit, a £2.3 million swing to a £0.2 million net borrowings position – this after particularly a net £2.7 million working capital outflow.

On the positive, there still looks a positive outlook if the growth can be managed well and the half-year balance sheet did also show net current assets of £6.8 million and just £0.1 million of non-current liabilities. I’ll monitor for these flowing through in the next update on trading, with the shares now on the watchlist.

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