TIDMABF
RNS Number : 8383X
Associated British Foods PLC
27 February 2017
27 February 2017
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 4 March
2017 which are scheduled to be announced on 19 April 2017.
For the half year we expect excellent progress in adjusted
operating profit and adjusted earnings per share for the group. The
trading outlook for the group for the full year is unchanged with
progress expected in adjusted operating profit and adjusted
earnings per share.
Cash flow and funding
We expect a stronger cash flow, before acquisitions and
disposals, in the first half of this year compared to last year.
This will be driven by a higher profit before depreciation and
amortisation, and a lower working capital outflow. Capital
expenditure will be higher, driven by Primark's expansion.
Acquisitions in the year to date amount to GBP60m and with the
benefit of net proceeds of GBP0.5bn from the sale of the US herbs
and spices business and the south China cane sugar operations, we
expect a net cash balance of some GBP200m at the half year.
Phasing of profit recognition
We continue to expect substantially all of the full year
increase in adjusted operating profit to be generated in the first
half. This is for the following reasons:
-- the benefit arising from the translation of overseas results
in the first half is expected to be some GBP50m but, with the
weakening of sterling in June last year, and at current exchange
rates, there will be less translation benefit in the second
half;
-- the full effect of sterling weakness against the US dollar on
Primark's purchases will result in a greater margin decline in the
second half because our currency hedges were at more advantageous
exchange rates in the first half; and
-- last year's change in Illovo's financial year end has benefited the first half.
Grocery
Revenue and operating profit in the first half are expected to
be ahead of last year at constant currency and substantially ahead
at actual exchange rates. Margin is expected to make further
progress.
Twinings Ovaltine revenues are well ahead of last year at
constant currency and, with almost 80% of sales generated overseas,
revenues at actual exchange rates are even further ahead. Twinings
has achieved market share gains in the UK, the US, Australia and
France. Ovaltine sales showed good growth in the developing markets
of Vietnam and Brazil and with successful new products in
Thailand.
Allied Bakeries volumes have been strong and the new Kingsmill
pack design has been well received by customers and consumers. The
market remains competitive and margins have declined as a
consequence. Jordans and Dorset Cereals achieved growth in the UK
supported by award-winning new product launches and particularly
good growth in Australia, Belgium, the Netherlands and France. The
rate of decline in Ryvita crispbread volumes has slowed with the
launch of new variants and portion packs.
Trading from continuing operations at ACH in North America has
been stronger than last year with higher consumer oil volumes and
better margins. Home baking product volumes also increased
resulting in share gains. As previously announced, we completed the
sale of the herbs and spices business on 21 November 2016 for a
gross cash consideration of $367m and the assumption by the
purchaser of net pension liabilities which, at the last year end,
amounted to $17m. Tax of some $100m will be payable on the
transaction in the current year. Oil volumes in Mexico have
improved but the weak peso has kept margin under pressure. Stratas
Foods, our commodity oils joint venture, completed the purchase of
Supreme Oil, based in New Jersey, thereby expanding its
manufacturing presence in the northeast of the US. Supreme supplies
a variety of oils, shortenings, mayonnaise and dressings to
foodservice and retail.
At George Weston Foods in Australia, first half revenues will be
close to last year at constant currency with market share gains
both in the bakery and meat businesses. Tip Top achieved volume
growth for its mainstream bread brand, 'The One', and the launch
last September of Abbott's gluten free loaf has been well received.
Further cost reduction and significant process improvement at the
Castlemaine factory contributed to margin improvement for Don
KRC.
Sugar
AB Sugar revenue from continuing operations will be well ahead
of last year on a comparable basis taking into account the change
in Illovo's year end. Higher sugar prices, increased production in
Africa, and further benefit from the performance improvement
programme will deliver a substantial increase in profit.
With 2016/17 forecast to be the second year of global sugar
deficit, world prices are higher than last year. A tightening of EU
stock levels has strengthened domestic prices across the region.
Domestic and regional prices increased in Africa as a result of
higher US dollar denominated world prices.
In the UK, the beet crop is smaller than the prior year and,
with marginally lower yields, production is projected to be just
under 900,000 tonnes. The UK campaign was delayed in order to
maximise the growth of the crop with production at Newark running
into late February. With sales fully contracted for the year,
firmer prices have been confirmed which, combined with lower beet
costs and a weaker sterling/euro exchange rate, will drive
substantial improvement in British Sugar's operating profit. The
new anaerobic digestion plant at Bury St Edmunds, which produces
biogas from sugar beet pulp, became operational in the summer of
2016. The biogas is fed into a gas engine generating low-carbon
electricity which then exports the renewable power to the national
grid.
Azucarera in Spain is expected to produce close to 385,000
tonnes of sugar from beet. In response to strengthening customer
demand and partly to compensate for a lower volume of beet sugar,
the Guadalete refinery, which processes cane raws, is operating
this year and is now expected to produce 295,000 tonnes. Operating
profit will be much improved with the benefit of higher sugar
prices and increased co-product revenues.
In China, we completed the sale of our five cane sugar factories
to a consortium led by Nanning Sugar on 22 December 2016 for total
proceeds, including debt assumed, of Rmb2.6bn (GBP297m). Tax
arising on the transaction is not expected to be material. Our two
beet factories in north China at Zhangbei and Qianqi, are operating
well and will process a record beet crop. Adverse weather
conditions experienced during beet harvesting and storage have
adversely impacted sugar levels in the beet but, with the higher
volumes and improved prices, this business is expected to deliver a
much improved profit this year.
Illovo has made good progress following last year's
weather-related crop shortfalls and, with further recovery expected
in the new season production, this financial year is expected to
improve to 1.7 million tonnes compared with 1.4 million tonnes for
the same period last year. Revenue increased substantially in the
first half driven by higher volumes and prices, and benefiting from
the introduction of new consumer pack sizes. Cost reduction from
performance improvement initiatives in Zambia, Malawi and
Mozambique substantially mitigated local inflation.
Agriculture
Revenue growth in the first half will have been achieved largely
as a result of higher commodity prices but also with the benefit of
last year's acquisition of a Danish producer of alternative
proteins and other speciality feed ingredients. Operating profit is
expected to be marginally down in the first half with a continued
strong performance from AB Vista, particularly in Asia, almost
offsetting the impact of margin pressure in UK feed.
UK ruminant feed volumes were lower than last year as a result
of the smaller sugar beet crop and strong price competition in
compound feed. Exports from our UK starter feed business were
strong and production from the new starter feed factory in Spain is
due to commence in the spring.
In China, further consolidation in the agricultural sector,
leading to an increase in larger scale farms, drove higher demand
for assured sources of high-quality feed. Further investment has
been made by AB Agri in developing a value-added product range and
operation of its new premix mill will commence shortly.
Ingredients
Revenues in the first half are expected to be ahead of last year
at constant currency and substantially ahead at actual exchange
rates. Operating profit growth for the half year will be strong on
both measures, with further recovery in yeast and bakery
ingredients and another excellent performance from ABF
Ingredients.
At AB Mauri, this has been achieved despite challenging economic
conditions in a number of countries especially its important
markets of Argentina and Brazil. The trading performance in Europe
has been in line with last year with notable success for the
recently opened UK Technical Centre which enables the development
of new bakery ingredient solutions and provides technical support
and training to customers. Asia is delivering a stronger
performance this year following last year's manufacturing
rationalisation, and margin improvement in Australia has been
achieved through overhead reduction.
Trading in North America has been good and in January we
completed the acquisition of Specialty Blending, a bakery
ingredients business located in Cedar Rapids, Iowa. The combination
of this high-quality and well-positioned ingredients blending
operation with AB Mauri's global technology capability will
strengthen our North American business.
ABF Ingredients has had an excellent performance in the first
half. Sales of feed enzymes were particularly strong and growth was
also achieved in bakery, food and technical enzymes. Abitec in the
US continues to strengthen its range of bioavailability enhancement
solutions and we have also seen sustained growth in functional
excipients and drug delivery systems in the US.
Retail
Sales at Primark are expected to be 11% ahead of last year at
constant currency, driven by increased retail selling space, and
21% ahead at actual exchange rates.
Last year was a 53-week year for Primark and, as a result, this
financial year started one week later than last year. On a
comparable week basis, total retail sales at constant currency are
expected to be 12% ahead, and 22% ahead at actual exchange rates.
The increase in average retail selling space in the first half,
compared with the same period last year, was 12%.
The UK has performed well with like-for-like sales 2% ahead of
last year and market share increased reflecting the strength of our
consumer offering. Like-for-like sales for the group were level
but, excluding a decline in the Netherlands affected by a
particularly rapid increase in selling space, like-for-like sales
were 1% ahead. New stores opened in the period traded strongly and
our business in the US continued to develop.
Stock was well managed again this period and markdowns were in
line with the first half last year. As forecast, the operating
profit margin in the first half will decline, mainly reflecting the
strength of the US dollar on input costs. Foreign exchange
contracts are now in place for the majority of the remaining
purchases for this financial year and our expectation for operating
profit margin decline for the full year is unchanged.
The new store opening programme in the first half was very
strong. Retail selling space has increased by 0.8 million sq ft
since the financial year end and, at 4 March 2017, 329 stores will
be trading from 13.1 million sq ft. 16 new stores were opened in
the period comprising relocations in Reading and Sheffield to
larger, more central locations; new UK stores in Carlisle,
Stafford, Truro, York and Colchester; Liffey Valley in Ireland;
Mallorca in Spain; Mannheim and Hamburg in Germany; Lille and
Paris, Evry in France; our second store in Italy in Brescia; an
89,000 sq ft store in the centre of Amsterdam; and our sixth store
in the US in Burlington, Massachusetts.
Our store at the Tottenham Court Road end of Oxford Street in
London was extended by almost 40%, increasing square footage to
114,000 sq ft, making it one of our largest stores after Manchester
and Newcastle in the UK and Madrid, Gran Via in Spain.
We still expect a total of 1.3 million sq ft of new selling
space in this financial year. 0.3 million sq ft of new space is
planned to open in the next quarter comprising: Uxbridge in the UK;
Charleroi, Belgium; Granada, Spain; Zwolle in the Netherlands and
Staten Island in the US, and an extension to the Downtown Crossing
store in Boston, US.
The new warehouses in Islip, Northamptonshire, and Roosendaal in
the Netherlands are now operational.
For further enquiries please
contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399
Flic Howard-Allen, Head of External 6500
Affairs
Citigate Dewe Rogerson
Chris Barrie, Eleni Menikou Tel: 020 7638
9571
This information is provided by RNS
The company news service from the London Stock Exchange
END
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