Wholesale group Kitwave has reported record first half revenues and operating profits but warned of the impact of employer overheads and impacted consumer confidence.
The North Shields-based group saw unaudited revenue jump 26.7% to £376.2m in the six months to the end of April, as adjusted operating profit over the same period grew nearly 22% to £13.2m. Kitwave said its retail and wholesale division had slightly outperformed expectations and said recent acquisitions had significantly boosted its nationwide footprint.
But since a pre-close trading update in early May, bosses said consumer confidence has deteriorated, impacting leisure sector customers who saw footfall increase on the previous year but consumption down in some areas. Kitwave said the impact was noticeable in its higher margin tourism-based customers.
The group says rises in Employer National Insurance contributions - estimated to be about £1.8m this year and £2.7m next - will add to its costs from the second half, and that it no longer thinks its can offset the rises. Taken together with a decision to invest more in its South West distribution depot, it means the group has downgraded full year adjusted operating profit range to between £38m-£40.5m, from about £43.6m.
Speaking to BusinessLive, Ben Maxted, Kitwave's chief executive officer, said the last year's Autumn Budget was "unhelpful" and put downward pressure on consumer confidence and people's propensity to spend. But that the business now had a more steady macroeconomic landscape to work in, despite turbulence from international factors such as US tariffs and conflict in the Middle East.
He pointed to Kitwave's strong cash generative business model - with pre-tax cash conversion of 106% across the first half - as a basis on which it can drive down debt with opportunities to invest in the business and made acquisitions.
In Kitwave's update to investors, Mr Maxted said: "This period has seen record revenue and operating profits for Kitwave, underpinned by our continued strategic transformation and supported by the acquisition of Creed Foodservice, which has proven to be an excellent addition to the group. Whilst we have navigated some operational changes, particularly the transition to a new, larger depot in the South West and the integration of multiple businesses, we are pleased with the solid progress made and the underlying strength of our group.
"The acquisition and integration of Creed Foodservice, alongside recent investments in infrastructure, have strengthened our position as a nationwide, delivered foodservice business with a clear and active pipeline of organic growth opportunities. The Creed Foodservice investment has strengthened our management capabilities and advanced the group's objective of delivering a more streamlined, scalable platform in the Foodservice marketplace. Our Retail and Wholesale division also performed well, benefitting from underlying consumer demand as the spring weather was favourable.
"As a result of some short-term additional operational investment relating to the new South West depot, the increase in employer National Insurance contributions and the macroeconomic backdrop detrimentally impacting consumer confidence and volumes in the destination leisure sector, the Board now anticipates that the Group's adjusted operating profit will be below current market expectations."
