TIDMABF
RNS Number : 6615A
Associated British Foods PLC
24 February 2014
24 February 2014
Associated British Foods plc
Pre Close Period Trading Update
Associated British Foods plc issues the following update prior
to entering the close period for its interim results to 1 March
2014 which are scheduled to be announced on 23 April 2014.
Adjusted operating profit for the first half is expected to be
in line with last year. A much lower profit from Sugar will be
offset by another excellent performance from Primark and
encouraging results from Grocery and Ingredients. Net financing
costs in the first half will benefit from the repayment, last July,
of British Sugar's 103/4% debenture, a strong cash flow, and lower
net debt throughout the period. Together with a further reduction
in the underlying tax rate at the half year, adjusted earnings for
the first half will be firmly ahead of last year.
Sterling is continuing to strengthen against our major trading
currencies and this will have a more significant negative effect on
the translation of overseas results into sterling in the second
half. Nevertheless, with a better than expected trading performance
from the non-sugar businesses and lower financing costs, we
continue to expect adjusted earnings per share for the financial
year to be similar to 2013.
The adoption of IAS19 Employee Benefits revised will result in a
minor restatement of previously reported results. The details are
contained in a table at the end of this statement.
Cash flow and funding
Operating cash flow in the first half will be further improved
driven by a good working capital performance, particularly at
Primark where effective inventory management and strong trading
have resulted in lower stock holding levels. Capital expenditure
has been higher than last year with lower expenditure in the food
businesses being more than offset by higher investment at Primark.
Net debt at the half year is expected to be GBP0.9bn, some GBP0.4bn
lower than at the same stage last year.
Sugar
Revenue and profit from Sugar in the first half will be
substantially lower than last year. A reduction in EU sugar prices,
ahead of regime reform in 2017, has been signalled for some time,
although the speed with which the market is adjusting has been
faster than anticipated. The world sugar price has also fallen to
what we believe to be an unsustainably low level, putting further
pressure on industry revenues and margins. This will be reflected
in AB Sugar's results, particularly in China. First half sales
volumes for Spain, Illovo and China will be lower than last
year.
The UK campaign is now virtually complete. Good growing
conditions through the mild winter resulted in the crop continuing
to grow into the new year, with good beet quality and high sugar
content. All factories have operated well and sugar production is
now estimated at 1.3 million tonnes compared with 1.15 million
tonnes last year. Production volumes at the Vivergo bioethanol
plant in Hull have increased steadily in recent months. However,
both over-supply in the EU and lower seasonal demand have led to a
reduction in bioethanol prices.
In Spain, the northern campaign was delayed to maximise beet
development from the reduced area under cultivation in the 2013
crop year and, although the campaign commenced well, adverse
weather in recent weeks has resulted in challenging harvest
conditions. Sugar production volumes are expected to be lower than
last year. As in the UK, profit will also be adversely affected by
the lower prices.
Illovo's revenues have been weaker with lower domestic volumes
in Zambia and Swaziland, competition from low cost imports reducing
prices in Tanzania and South Africa, and lower EU pricing affecting
Least-Developed Country exports. The Malawian kwacha has continued
to decline against both the rand and sterling since last financial
year end.
All five factories in south China made a good start to their
campaign with sugar content and extraction both ahead of last year
compensating for the smaller area under cultivation. Total sugar
production is expected to be in line with last year. Production in
the north has been seriously reduced by flooding in Heilongjiang
and, with fewer factories in operation following last year's
rationalisation, volumes are expected to be much lower
year-on-year. The campaigns at Qianqi and Zhangbei were both
excellent with good factory throughput and higher sugar content in
the beet. Significant overhead and efficiency improvements have
been achieved in both regions resulting in a net improvement in
performance.
Agriculture
Revenue and operating profit in the first half are expected to
be similar to last year at both constant currency and actual rates.
Lower UK feed volumes have been offset by growth in China, and a
strong performance at AB Vista where Quantum Blue in South America
and Econase in Asia were the main contributors. Successful
commissioning of an animal feed enzyme granulation line at the
extrusions plant in Evansville, Indiana, was completed in the
period. Frontier traded at similar levels to last year with good
sales of crop inputs and fertilisers.
Grocery
Revenue in the first half is expected to be ahead of last year
at constant currency, but just below at actual rates. However,
margins and profit will be much improved.
Twinings Ovaltine has again performed well with strong sales
growth for tea in the US and the UK, and improved margins driven by
higher volumes and factory efficiencies. Allied Bakeries made
progress in the highly competitive UK bread market and volumes and
margins will be ahead of last year. A new bread plant was
commissioned at West Bromwich as we approach the end of a major
capital investment programme in our UK bakeries. This programme
delivers less waste, better control of our processes and
consistently high quality bread. Sales at Silver Spoon will be
lower than last year as a result of lost contracts and reduced UK
sugar pricing, but the profit impact has been partially mitigated
by overhead cost reduction.
Sales in local currency will be ahead at George Weston Foods in
Australia, driven by higher bread prices and increased meat
volumes. These businesses both made progress with cost reduction
initiatives and Don KRC achieved further yield improvements and
efficiencies at its Castlemaine factory. Revenue and profit at ACH
is expected to be ahead of last year with higher corn oil volumes
and margins.
Ingredients
Revenue in the first half is expected to be ahead of last year
at constant currency but slightly lower at actual rates. Profit
from continuing operations will be well ahead of last year's
break-even result, with the absence of restructuring costs and
early signs of improvement in yeast and bakery ingredients.
Whilst AB Mauri's markets remain competitive, particularly in
Asia, a number of new initiatives are starting to yield positive
results. Cost inflation in South America has either been recovered
through pricing or offset by cost reduction. Revenue and profit in
North America will be ahead of last year driven by higher volumes
and continued investment in people, processes, and business
development. The new yeast factory in Mexico is now operational
enabling further expansion of distribution throughout North and
Central America. In January we completed the acquisition of a small
bakery ingredients business in Western Europe which complements our
existing operations in the region. The integration of these two
businesses will broaden our product range and strengthen our
presence in a number of key markets.
At ABF Ingredients, the new extrusions factory at Evansville in
the US has been successfully commissioned, products have been
approved by key customers and the factory is fully operational.
Closure of the yeast extracts plant in China was completed with a
number of contracts successfully transferred to our Hamburg
facility.
Retail
Sales at Primark in the first half have been very strong and are
expected to be 13% ahead of the same period last year at constant
currency and, with the benefit of a stronger euro in this period,
14% ahead at actual rates. This has been driven by 4% like-for-like
sales growth, an increase in retail selling space and superior
sales densities in the larger new stores. Like-for-like sales in
the first eight weeks of the financial year were held back by
unseasonably warm weather and strong comparatives in the previous
year, but the rest of the period saw excellent trading including
the Christmas period. New store openings have added 8% more selling
space since the last half year.
Operating profit margin is now expected to be higher than in the
same period last year, benefiting from warehouse and distribution
efficiencies and lower freight rates. Christmas trading was strong
in both years.
Retail selling space has increased by 0.6 million sq ft since
the financial year end and, at 1 March 2014, 269 stores will be
trading from 9.6 million sq ft. We have opened 16 new stores in the
period including our first two stores in France: Marseille which
began trading from 63,000 sq ft on 16 December 2013, and Dijon
which began trading from 44,000 sq ft on 3 February, both of which
have traded strongly to date. In Spain we opened six new stores and
closed the smaller of our two stores in La Coruña and Zaragoza,
bringing the total there to 39. Three further stores were added in
the UK, including Crawley where we relocated to a larger site, and
we also closed our small store in Leytonstone. Two new stores were
added in the Netherlands and one each in Germany, Austria and
Portugal, all of which have traded exceptionally well.
We expect to add a further 0.5 million sq ft of selling space in
this financial year, bringing the net additions for the year to 1.1
million sq ft which is substantially more than the 0.8 million
achieved in 2013. The additional stores will include a further
three in France, located in shopping centres in the suburbs of
Paris; two additional German stores, our second in Berlin and one
in Cologne; three new UK stores including a relocation in Cardiff;
and we will also relocate our Plenilunio store, our first in Spain,
to a location twice its size. As we opened no stores in the second
half of last year, these openings will accelerate the 8% selling
space growth achieved in the first half. Capital expenditure for
the full year is planned to be ahead of last year.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Flic Howard-Allen, Head of External Affairs
Citigate Dewe Rogerson
Chris Barrie, Eleni Menikou Tel: 020 7638 9571
Jonathan Clare Tel: 07770 321881
Note to editors:
The results for the year ended 14 September 2013 and the interim
results for the 24 weeks ended 2 March 2013 will be restated with
effect from 15 September 2013, upon adoption of IAS19 Employee
Benefits Revised. The impact of this restatement on the income
statement is summarised below:
24 weeks ended 2 March Year ended 14 September
2013 2013
--------------------------- ------------------------- --------------------------
restated previously restated previously
reported reported
Adjusted operating profit
(GBPm) 493 496 1,180 1,185
Adjusted profit before
tax (GBPm) 448 452 1,088 1,096
Adjusted earnings (GBPm) 328 331 775 781
Adjusted earnings per
share (p) 41.5 41.9 98.1 98.9
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This information is provided by RNS
The company news service from the London Stock Exchange
END
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