FTSE 250 movers: Quilter in favour, Hill & Smith slips

(Sharecast News) - FTSE 250: 19,831.48, -0.63% at 1515 GMT. Fresh food company Bakkavor warned of a tough year ahead as 2022 profits slumped by 78% due to inflation, higher costs and changing consumer habits amid the cost of living crisis.

The company on Wednesday said pre-tax profit fell to £18m, despite a 10.6% rise in like-for-like revenue to £2.06bn due to price rises and higher US volumes. It also announced the closure of two UK sites in an effort to cut soaring costs.

Total reported revenues jumped 14.3% to £2.1bn after the benefit of the additional week to the fiscal year and foreign exchange translations were included.

Volumes in the UK were broadly flat year on year, but the prepared food group, which supplies all the big supermarkets, gained market share to offset the soft underlying demand.

"We have seen significant inflationary pressures across our cost base and on household budgets, which in turn have driven changes in consumer behaviour. We have also had to contend with supply chain disruption as global events continue to cause instability which, combined with a tight labour market, has created a difficult trading environment."

Bakkavor said it expected the "challenging" trading environment to continue into the coming year, as consumers are impacted by the cost-of-living crisis. Inflation across the cost base is also expected to persist, particularly in energy and labour, and the firm forecast an increase in costs of around 6 - 8% in 2023.

Wealth manager Quilter posted a better-than-expected full-year profit on Wednesday as it said investor sentiment was expected to recover this year.

In the year to 31 December 2022, adjusted pre-tax profit fell to £134m from £138m a year earlier, but this was comfortably ahead of consensus expectations of £113m.

Assets under management and administration declined to £99.6bn from £111.8m. Quilter said £14bn of negative market movements had more than offset net inflows of £1.8bn.

Quilter Investment Platform net inflows came in at £2.2bn, down from £3.5bn in 2021 and reflecting "an industry wide slowdown in gross flows," it said.

Chief executive Steven Levin said: "The group delivered a robust set of results during 2022 against the backdrop of a recessionary global economic environment, with higher inflation, which reduced the value attributed to equity and bond investments. Accordingly, investor sentiment for wealth and savings solutions reduced during the year."

However, Levin said investor sentiment is expected to slowly recover this year, "supporting a gradual improvement in IFA net flows coupled with another strong net flow performance from the Quilter Channel and a solid out-turn from our High Net Worth segment".

Cyber security firm Darktrace posted a slump in first-half operating profit on Wednesday and cut its free cash flow guidance, as new customer additions slowed and it was hit by a jump in employer tax charges.

In the six months to the end of December 2022, operating profit slid 91.6% to $577,000. This was primarily due to "elevated share-based payment and associated employer tax charges related to vesting of a significant block of grants made at IPO," the company said. It added that share-based payment charges are expected to normalise in the second half of this year.

Revenue was ahead 35.8% at $259,259. Darktrace said this was achieved despite a noticeable second-quarter slowdown in new customer additions due to the current macro-economic environment.

"To offset this new customer slowdown, the group leveraged its past and ongoing investments in customer success, and increased focus on larger account sales and upsells, to drive increases in both average new contract and existing customer contract ARR," it said.

Chief executive Poppy Gustafsson said: "Our business continues to deliver against a challenging macro-economic backdrop, with continued strong year-on-year revenue growth.

"Although there has been a slowdown in new customer wins, I am pleased that our investments in retaining customers and increasing the value of both new and existing contracts are paying off. Our strong cash position and ongoing cash generation means that we can continue to invest in expanding our product pipeline and evolving our go-to-market strategies."

The company also said on Wednesday that it was cutting its free cash flow guidance to 50% to 55% of adjusted EBITDA, from 60% to 65% previously. This is to reflect the accounting treatment for the net settlement of tax obligations that arose in H1 FY2023 from the vesting of certain IPO-related share awards for its two executive directors.

Darktrace shares slumped earlier this year after short-seller Quintessential Capital Management took an active short position and questioned the validity of its financial statements. In response, the company hired Ernst & Young to review its finances.

Tullow Oil gross annual profits almost doubled as the company cashed in on higher oil and gas prices sparked by the war in Ukraine.

Gross profit for 2022 almost doubled to $1.08bn, on a 40% rise in revenue to £1.78bn with group production in line with guidance. Post tax-profit came in at $49m from an $81m loss a year earlier.

Free cash flow rose to $267m from $245m and net debt fell to $1.9bn from $2.1bn.

The Africa-focused company said it planned to invest $400m this year, mainly on its flagship fields in Ghana, and expected free cash flow of $100m at an oil price of $80 a barrel, or twice that at $100 a barrel, in line with from previous guidance.

Tullow hedged 33,100 barrels per day (bpd) of this year's output and 11,300 bpd of 2024's production at between $55 and $75 a barrel. It expects to produce between 58,000 and 64,000 bpd this year, broadly in line with 2022.

Construction and infrastructure products specialist Hill & Smith reported a record trading performance in its preliminary results on Wednesday, with a 14% organic constant currency revenue and profit growth, to £732.1m and £97.1m, respectively.

The FTSE 250 company said the growth was driven by its US businesses, which represented 64% of group operating profit.

Its operating margin also increased by 90-basis points to 13.3%, which it put down to strong operational performance, pricing actions, and portfolio evolution.

Hill & Smith reported an underlying profit before tax of £87.9m from continuing operations, up 23%, and underlying earnings per share on the same basis of 85.4p, rising 22% year-on-year.

The group said it made significant progress in portfolio management, having announced two value-enhancing acquisitions in October of National Signal, a high-growth US off-grid solar lighting business for £24.2m; and Widnes Galvanizing, expanding its galvanising footprint in the UK for £3.9m.

It also accelerated its US composites growth strategy with the acquisition of Enduro Composites in February for £28.7m.

Hill & Smith announced the completion of the acquisition of Korns Galvanizing on Wednesday, meanwhile, for £9.4m, which it said would further support growth in the attractive US galvanising market.

The firm disposed of France Galva in October for £62.0m, reducing its exposure to the lower-growth and lower-margin French galvanising market.

Its refreshed financial framework reflected its growth potential, the board said, as well as improved cash generation in the second half, with year-end covenant leverage at 0.7 times.

Hill & Smith's board proposed a final dividend of 22p per share, making for a 16% increase on 2021, in line with its dividend policy.

The group said it was well-positioned in structurally growing end markets and expected to make further progress in 2023, despite macroeconomic uncertainties.

"Hill & Smith delivered a year of significant progress, particularly in our US-focused businesses," said executive chair Alan Giddins.

"We also took material steps forward in improving the quality of the portfolio during the year, resulting in underlying profitability being ahead of market expectations."

Giddins said that looking ahead, the group was exposed to a number of end markets which benefit from long-term structural growth drivers.

"We expect to make further strategic progress in 2023 and are well positioned for the longer term."

FTSE 250 - Risers

Clarkson (CKN) 3,315.00p 3.92% Quilter (QLT) 92.34p 3.66% W.A.G Payment Solutions (WPS) 85.90p 3.49% Just Group (JUST) 93.95p 3.24% Diversified Energy Company (DEC) 101.50p 2.94% Babcock International Group (BAB) 323.20p 2.02% Ibstock (IBST) 164.70p 1.48% CLS Holdings (CLI) 145.00p 1.40% Spirent Communications (SPT) 182.90p 1.33% Darktrace (DARK) 267.20p 1.25%

FTSE 250 - Fallers

Bank of Georgia Group (BGEO) 2,745.00p -5.99% Hill and Smith (HILS) 1,330.00p -5.94% Tullow Oil (TLW) 32.36p -5.55% IP Group (IPO) 59.25p -3.81% Bakkavor Group (BAKK) 103.00p -3.74% Molten Ventures (GROW) 362.40p -3.36% Tritax Big Box Reit (BBOX) 142.10p -2.94% JTC (JTC) 694.00p -2.94% Future (FUTR) 1,243.00p -2.89% Marshalls (MSLH) 306.40p -2.85%