TIDMABF
RNS Number : 8428F
Associated British Foods PLC
26 February 2018
26 February 2018
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 for the 24
weeks to 3 March 2018, which are scheduled to be announced on 17
April 2018.
Trading outlook
For the half year, other than the expected reduction in Sugar
revenues, sales growth will be delivered by all of our businesses
at constant currency. We expect adjusted operating profit to be in
line with that for the same period last year, and a lower net
financial expense and lower group effective tax rate will lead to
progress in adjusted earnings per share.
As already indicated, we expect margin in the second half for
Primark to be higher than that in the same period last year. For
the full year, our outlook for the group is unchanged with progress
expected in both adjusted operating profit and adjusted earnings
per share.
Cashflow and funding
We expect a return to an underlying cash out flow for the group,
before acquisitions and disposals, in the first half of this year.
This will mainly be driven, as in past years, by the seasonal
increase in working capital in our European sugar businesses
following the completion of processing campaigns and an increase in
stock at Primark reflecting the timing of deliveries ahead of
Chinese New Year. Capital expenditure will be at the same level as
last year. Cash flow for the full year will also be in line with
expectation.
We expect a net cash balance for the group of some GBP100m at
the half year reflecting the operational cash out flow and the
acquisition, on a debt-free basis, of Acetum in October 2017 for
GBP284m.
Grocery
Revenue in the first half is expected to be ahead of last year
at constant currency and, with progress in margin, operating profit
will be well ahead driven by Twinings Ovaltine.
Revenues at Twinings Ovaltine are ahead of last year at constant
currency with especially strong growth for Ovaltine in its major
markets of Switzerland, Germany, South Asia, Nigeria and Brazil,
supported by new product launches. Twinings made good progress in
the US and Italy although UK sales were held back by strong
competition in green teas and infusions.
Volumes at Allied Bakeries in the UK remained strong with good
trading over the Christmas period and some progress has been made
in reducing the loss for this financial year. Jordans has achieved
good overseas growth, especially in Australia, France, Canada and
also, with the benefit of recent launches, in New Zealand and
Brazil. In the UK, Ryvita Thins has shown continued growth although
sales of crispbread have suffered from strong competition. Good
progress has been made with the construction of the new Ryvita
bakery at Bardney in Lincolnshire which is expected to be
commissioned in September. At AB World Foods, Patak's is delivering
further share growth following the successful launch of paste pots
which had television and recipe book endorsement by Jamie
Oliver.
The integration of Acetum, the recently acquired Modena-based
balsamic vinegar business, is progressing well. The prospects for
this business are good although, following a poor European grape
harvest, unusually high raw material costs are likely to impact
margins in the second half of this financial year.
At ACH in the US the successful advertising campaign for Mazola,
which promotes its favourable health credentials, has driven
further volume growth. In the first half, some of the the benefit
of this is expected to be offset by higher freight costs following
hurricanes earlier in the year. ACH's baking brands have performed
well and Mexico is benefiting from improved dollar exchange
rates.
Margins continue to improve at George Weston Foods in Australia.
The financial result at the Don KRC meat business is ahead with
improved trading and factory performance. Whilst competition in
bread remains strong, the new Tip Top Thins product, launched last
year, is performing well.
Sugar
AB Sugar's revenue and profit is expected to be down on last
year, in line with previous guidance, primarily as a result of
significantly lower EU prices which are adversely affecting our UK
and Spanish businesses. This will be partially mitigated by a much
larger UK crop and the ongoing benefits from performance
improvement projects across the business.
The EU sugar regime ended on 30 September 2017 resulting in the
end of sales quotas and the removal of constraints on exports.
Sugar production in the EU during the 2017/18 campaign will be
substantially higher than last year as a result of exceptionally
high beet yields and increased crop area. As a consequence, the EU
has become a net exporter of sugar and domestic sugar prices have
fallen. EU ethanol production from sugar has also increased leading
to lower ethanol prices.
In the UK, higher yields and a larger crop area have led to an
increase in sugar production from 0.9 million tonnes last year to
1.38 million tonnes this year. Looking ahead, there has been a good
take up of sugar beet contracts for 2018/19, with almost 60% of
contracts now on a three-year agreement. With sugar available from
a number of EU countries, competition has been strong but sales for
the year are now largely contracted. With lower ethanol prices, the
maintenance shutdown for Vivergo has been brought forward into the
peak sugar ethanol production season.
In Spain, sugar production from beet is expected to be around
0.4 million tonnes, ahead of last year. Sowing of the 2017/18
southern crop is now complete, with an expected area in line with
last year. As a result of higher sugar production from beet, the
cane refinery at Guadalete will process lower volumes this
year.
Our beet sugar business in China has performed well processing
some 1.25 million tonnes of sugar beet. Beet quality has been
dramatically improved and the factory operation has been excellent.
With good domestic prices, for the full year, we expect an
improvement in profit.
Sugar production at Illovo is expected to improve again, to over
1.7 million tonnes, with generally favourable weather conditions
and improved management of irrigation and crops. We continue to
roll out advanced drip irrigation systems with major capital
investments in Swaziland and Malawi. Zambia volumes have
disappointed with some shortfall in sugar production. Development
of sales in Illovo's regional markets has progressed well.
Agriculture
Increased commodity prices in the UK are expected to drive
strong revenue growth in the first half. Profit from grain trading
at Frontier has been held back by lower volatility in grain prices
and, as a result, profit for AB Agri for the half year, is expected
to be in line with last year.
Ingredients
Revenues in the first half are expected to be ahead of last year
at constant currency. Good progress is expected at both AB Mauri
and ABF Ingredients and margin will again show improvement at the
half year.
In North America, AB Mauri is benefiting from the successful
integration of the bakery ingredients business acquired last year
and improved plant performance. The business in South America has
performed well given the challenging economic conditions.
Retail
Sales at Primark are expected to be 7% ahead of those reported
last year, at constant currency, driven by increased retail selling
space and 9% ahead of last year at actual rates.
Like-for-like sales for the group are expected to show a decline
of 1% for the 24 weeks. Sales growth was held back by unseasonably
warm weather in October with a significant decline in the
like-for-like measure in that month. Encouragingly, like-for-like
sales for the 16 weeks to 3 March 2018 are expected to deliver
growth of 1% and Primark achieved record sales in the week before
Christmas. Early trading of the new spring/summer range has been
encouraging.
Primark is performing very well in the UK with sales 8% ahead of
last year and a strong increase in our share of the total clothing
market. This was driven by a 4% growth in like-for-like sales, an
increase in selling space and the breadth of our consumer offering.
Our business in the US continues to make progress.
Operating margins in the first half are expected to be close to
those in the same period last year with better buying virtually
offsetting the adverse effect of the US dollar exchange rate on
purchases. Stock was tightly managed again this period and
markdowns will be in line with those of the first half last
year.
We expect an acceleration in Primark profit growth in the second
half as a result of an improvement in margin over the same period
last year. This will be driven by better buying and some benefit of
the recent weakness of the US dollar on purchases which will more
than offset an expected return to a more normal level of markdowns,
compared to the very low level achieved last year.
Retail selling space increased by 0.4 million sq ft since the
financial year end and, at 3 March 2018, 352 stores will be trading
from 14.3 million sq ft which will compare to 13.1 million sq ft a
year ago. Seven new stores were opened in the period: Bielefeld,
Münster and our second store in Stuttgart, Germany, Charlton and
Staines in the UK, Loulé in the Algarve, Portugal and Le Havre in
France. In addition, there were two relocations in the UK: a return
to the redeveloped Westgate shopping centre in Oxford and a move to
a larger store in Rotherham.
We still expect a total of 1.2 million sq ft of new selling
space to be added in this financial year. A strong programme is
planned for the next quarter with 0.5 million sq ft of additional
selling space. New stores are planned for Toulouse and Metz in
France, Munich in Germany, Antwerp in Belgium, Valencia in Spain,
Brooklyn, our ninth store in the US and in the Westfield London
shopping centre at White City. We will also move to much larger
premises in Kingston, UK.
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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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