TIDMABF
RNS Number : 1729Y
Associated British Foods PLC
07 September 2015
7 September 2015
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 full year results, 52 weeks to
12 September 2015, which are scheduled to be announced on 3
November 2015.
Trading performance
Our expectation for the full year results is unchanged.
Operating profit at constant currency will be ahead of last year
for Grocery, Agriculture, Ingredients and Retail. As guided in the
interim results, the decline in operating profit in Sugar and the
net adverse impact on the translation of overseas results arising
from the strengthening of sterling, which is now some GBP30m, will
give rise to an overall decline in adjusted operating profit for
the group.
The net interest charge will be lower than last year with the
benefit of a lower average level of borrowings. The underlying tax
rate will also be lower than last year and in line with the rate
used at the half year. Our earnings expectation for this financial
year continues to reflect a modest decline in adjusted earnings per
share for the group for the full year.
Currency
The group is diverse and multinational with operations and
transactions in many currencies, and as a result has both
translational and transactional currency exposures. During the
current financial year, against a basket of currencies, sterling
and the US dollar both strengthened and the euro weakened
significantly. Since our half year, and particularly in recent
weeks, local currencies in our emerging markets have weakened
significantly.
If current rates persist we expect an adverse effect on adjusted
operating profit next year. The translation impact will be at a
similar level to the current year but the transactional impact will
be greater.
Net Debt
Another year of good cash generation will see a further
reduction in net debt from last year's GBP446m. Capital expenditure
will be lower than last year, although still well ahead of
depreciation, and we expect a working capital outflow.
Grocery
At actual exchange rates Grocery operating profit is expected to
be ahead of last year with an increase in margin, and revenue will
be lower, largely driven by commodity price deflation.
Twinings Ovaltine grew market share in a number of regions and
generated a strong profit increase. In the UK, where the market for
mainstream teas saw some contraction, Twinings' sales of premium
black tea, green teas and infusions all grew. Australia also had
another successful year with the relaunch of the English Breakfast
range supported by advertising and in-store promotion. Ovaltine
sales in Thailand, one of its most important markets, were lower
than last year on the back of economic weakness, but growth was
achieved in its developing markets, particularly south east Asia.
Strong factory performances delivered lower manufacturing
conversion costs and overheads were also lower benefiting from cost
reduction initiatives.
Sales volumes at Allied Bakeries increased over the financial
year. However, the UK bread market has continued to be very
challenging and lower bread prices resulted in a reduction in
profitability. The Kingsmill brand was relaunched in May and
revenues from Sandwich Thins have continued to build following last
year's launch. We have completed our major capital investment
programme and this year have reduced waste, further improved
production processes and manufactured products of a consistently
high quality.
Silver Spoon's cost reduction programme has substantially
improved operational efficiency. Commercial success this year
included the securing of two supply contracts with major UK
retailers. Since its acquisition last October, Dorset Cereals has
traded ahead of our business plan and its integration with Jordans
Ryvita has gone smoothly. Jordans continued to perform well, but
Ryvita crispbread sales were lower in a competitive market.
At AB World Foods, Patak's and Blue Dragon maintained their
positions as the leading Indian and Oriental ambient brands in the
UK but lost some non-core business leading to lower revenues. An
improved sales mix drove an overall margin increase and operating
profit will be ahead of last year. The UK ethnic restaurant and
take away market has seen some improvement after several years' of
decline, with increased consumer expenditure on out of home eating.
Westmill achieved margin improvement with its Chinese catering
brands performing particularly well driven by strong commercial
activity.
Revenue at George Weston Foods in Australia will be close to
last year in local currency but profit will be ahead. Bread margins
were lower as retailers featured bread in their drive for lower
prices with heavy price promotion activity which more than offset
the benefits of a cost reduction programme across all bakery sites.
Margins in the Don KRC meat business improved markedly in the
second half with higher volumes and much improved production
efficiency. As expected raw material cost and quality were
substantially better in the second half.
At ACH in North America, Mazola achieved strong volume growth
following increased investment in advertising and marketing which
highlighted the cholesterol-lowering benefits of corn oil.
Sugar
Revenue and adjusted operating profit for AB Sugar for the full
year, at both actual and constant currency, will again be
substantially lower than the previous year driven by the further
decline in European sugar prices. Further benefits delivered by our
ongoing performance improvement programme, including significant
reductions in overheads, made an important contribution to reducing
our ongoing cost base. However, these could not compensate for the
impact of lower prices.
Sugar prices in the EU have now stabilised and with quota stock
levels reducing back towards historic norms, we expect to see some
price recovery during 2015/16. Prices in China increased during the
year, as a consequence of lower domestic production and reduced
imports leading to lower inventory levels, but they are still at a
premium to import parity prices. World prices declined with recent
pricing below 11.0 cents per pound which is the lowest for more
than six years. This has led to an increase in low-cost imports
into Africa which has held back some domestic prices.
UK sugar production of 1.45 million tonnes was driven by very
high beet yields and excellent factory performances. The UK crop
for the 2015/16 season has made good progress but, with a reduction
in the contracted area under cultivation in excess of 20%, and a
return to more typical beet yields, sugar production is expected to
be just short of 1.0 million tonnes. This will lead to a fall in
our quota stock levels. Delivered beet costs for the 2015/16
campaign will be some 20% lower than the current year with a
further substantial cost reduction now secured for the 2016/17
campaign.
In Spain, all factories performed well. Total production will be
ahead of last year at 709,000 tonnes of which 414,000 tonnes was
from beet and 295,000 tonnes from refined raw sugars.
Illovo is expected to produce 1.69 million tonnes in the year to
September in line with last year. The effect of drought on cane
growth in South Africa was largely offset by strong production
volumes across all other countries of operation. Zambia achieved
record sugar production and further development at the factory is
now planned which will increase sugar refining capacity and create
new sugar conditioning and storage facilities to enable the supply
of higher quality sugars to the regional market. The Malawi sugar
market has been seriously disrupted by the country's continued
economic difficulties and sales volumes and prices reduced as a
result. Across the group we continue to focus on domestic and
regional sales to mitigate the effect of lower world and EU
prices.
In China there has been some recovery in market prices and
profitability has improved as a result. Following the sale of the
Yi'an beet sugar factory in Heilongjiang in February, we completed
the sale of the BoCheng factory in August, so bringing to an end
our involvement in sugar production in the Heilongjiang region. The
final cost of ceasing these operations was GBP99m all of which was
a non-cash charge. Subsequent to these disposals we have commenced
the relocation of most of our management team from the head office
in Beijing to the operating sites in order to provide maximum focus
on our remaining facilities.
Agriculture
We expect another record year at AB Agri with strong
performances across all businesses. Adjusted operating profit at
actual exchange rates will show further progress, on lower revenues
than last year as a result of softer commodity prices. Continued
investment in more energy-efficient manufacturing and distribution
reduced overheads and contributed to our commitment to reduce
energy use.
UK feed volumes held up well despite continued pressure on the
UK dairy sector where AB Connect's range of ruminant feed products
offered a cost effective way of maintaining or improving milk
yields and quality. In Speciality Nutrition, the recent expansion
and modernisation of the UK pre-mix and starter feed plant at
Rugeley enabled the business to meet higher domestic demand.
Frontier Agriculture, our joint venture arable operation, traded at
similar levels to last year and, after a slow start, sales volumes
of crop inputs improved. Currency changes and geographical
influences added complexity to grain trading operations, and lower
than normal protein levels in domestic wheat increased the demand
for quality wheat imports.
AB Agri China delivered a strong result driven by good
procurement and a favourable product mix. The new feed mills are
performing well with Zhenlai delivering substantial cost savings to
its major customer and Rudong, which was built to supply feed
exclusively to a major international processor, already performing
to plan.
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September 07, 2015 02:00 ET (06:00 GMT)
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