TIDMABF
RNS Number : 9178Q
Associated British Foods PLC
25 February 2019
25 February 2019
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 2 March 2019, which are scheduled to be announced on 24
April 2019.
Trading outlook
For the half year, other than the expected reduction in Sugar
revenue, sales growth will be delivered by all of our businesses.
We expect adjusted earnings per share to be broadly in line with
the same period last year, with lower net financial expenses
offsetting a small reduction in adjusted operating profit.
For the full year, our outlook for the group is unchanged with
adjusted operating profit and adjusted earnings per share for the
year expected to be in line with last year.
Cashflow and funding
We expect a cash outflow in the first half of the year,
consistent with the pattern seen in previous years, driven by the
seasonal increase in working capital in our European sugar
businesses following the substantial completion of processing
campaigns. Capital expenditure will be at the same level as last
year. Net cash is expected to be some GBP300m at the half year,
compared to GBP123m at the first half last year.
Grocery
Revenue and operating profit in the first half are expected to
be ahead of last year on an underlying basis, with a further
improvement in margin. Including a GBP12m one-time cost in respect
of supply chain consolidation at Twinings Ovaltine, adjusted
operating profit for the first half will be in line with last
year.
Twinings Ovaltine revenues are ahead of last year, with sales in
Australia and the UK benefiting from the continued success of the
Cold Infuse teas range launched last summer. Ovaltine achieved good
growth in the important market of Switzerland, although sales in
Thailand were lower than an exceptionally strong first half last
year. We have now successfully completed the transfer of tea
production from Jinqiao, China to our existing site in Swarzedz,
Poland.
Jordans and Ryvita achieved good sales growth in a number of
international markets, while sales of Ryvita Thins grew in the UK,
although profit declined due to increased raw material costs. We
will benefit from a full period of ownership of Acetum, which was
acquired in October 2017. Margins have improved with grape must
prices lower than the exceptionally high level last year following
a poor grape harvest in 2017.
Work continues to reduce the operating losses at Allied
Bakeries. Some bread sales volume will be lost next year as a
result of recent customer discussions on pricing. We remain focused
on reducing these losses and will take further measures to this end
as needed.
At ACH in the US, sales of Mazola corn oil increased through the
continued Heart Healthy advertising campaign while margins
strengthened due to lower oil commodity costs. Market share gains
were achieved in baking products in the US and Canada.
Sales increased at George Weston Foods in Australia and margins
improved significantly. Tip Top achieved higher packaged bread
volumes while the launch of Abbott's Bakery Thins has been well
received. Operating performance at the Don KRC meat business
improved with cost reduction initiatives and lower procurement
costs delivering a further increase in margin. The integration of
Yumi's, the recently acquired premium chilled dips and snacks
business, is progressing well. Sales grew strongly over the
Christmas period with gains in market share.
Sugar
AB Sugar revenue from continuing operations is expected to be
lower than last year in the first half, in line with previous
guidance, with lower EU contracted sugar prices impacting our UK
and Spanish businesses. As a result, in the first half AB Sugar
will record a marginal loss, but operating profit for the full year
remains in line with our expectations.
EU stock levels have been tightening during 2018/19 as a
consequence of the lower production in the current campaign. A
reduction in the European crop area for the 2019/20 season is
expected, and so stocks will remain low which should further
underpin the current upward trend in EU sugar prices.
The UK campaign is in its final stages and has continued to
progress well, benefiting from good harvesting conditions and
strong operating performance at all of our factories. Production
this year will be some 1.15 million tonnes compared to 1.37 million
tonnes last year when beet yields reached record levels. Sales for
this year are now largely contracted. Crop area for the 2019/20
season is expected to be between 5% and 10% lower than this
year.
In northern Spain, the campaigns at Miranda and Toro are now
complete and processing at La Beneza has commenced, with production
from beet at some 300,000 tonnes, lower than last year due to
adverse weather. The beet sugar shortfall will be compensated by
increased production from the refining of cane raws at Guadalete
which is expected to yield 170,000 tonnes. Reduced beet prices for
the 2019/20 campaign have been notified, and volumes will be
contracted with growers this spring. The benefit of these reduced
costs will be seen next financial year, and is expected to be
partially offset by a reduced crop area.
In China, our two factories at Zhangbei and Qianqi have
experienced difficult processing conditions due to very low levels
of sugar content in, and purity of, beet. Sugar production is
expected to be 10% lower than last year. Domestic sugar prices
continue to be low and, as previously advised, the business will
make a loss this financial year.
Illovo continued to perform well, with higher production and
strong domestic sugar prices. Following wet conditions in the early
part of the season, successful extended campaigns have been
completed in all countries. Sugar production is now expected to
increase again to 1.76 million tonnes compared to 1.7 million
tonnes last year, with cane yields further improved and production
at the Nakambala mill in Zambia exceeding 400,000 tonnes.
Agriculture
Revenue in the first half will be ahead of last year with growth
of UK compound feed sales through increased volumes and pricing due
to higher commodity costs.
The closure of the Vivergo bioethanol plant last autumn reduced
the availability of co-products, of which Trident Feeds was the
sole marketer, with a consequent reduction in operating profit for
AB Agri.
AB Vista maintained its position as a leader in phytase in the
global feed enzyme market, although margins were held back by
increased competition, particularly in the Americas.
Ingredients
Revenues in the first half are expected to be ahead of last
year, with progress in operating profit.
At AB Mauri, trading performance in bakery ingredients in EMEA
benefited from the integration of Holgran and Fleming Howden which
were acquired last year. Price increases were achieved in a number
of countries including the important markets of North America and
Argentina. Following a sustained period of high price inflation, we
have adopted hyperinflationary accounting under IAS 29 for
Argentina from the beginning of this financial year.
ABF Ingredients continued to increase revenue in the first half
driven by sales of protein crisps, with further share gains in the
expanding US market.
Retail
Sales at Primark are expected to be 4% ahead of last year in the
first half, at both constant currency and actual exchange rates,
driven by increased retail selling space partially offset by a 2%
decline in like-for-like sales. With a much higher margin, profit
is expected to be well ahead of the same period last year. Early
trading of the new spring/summer range has been encouraging.
The UK continued to perform well and we substantially increased
our share of the total clothing, footwear and accessories market,
with sales 2% ahead of last year. Cumulative like-for-like sales
have improved since the January trading update. The effect of low
footfall in November was offset by good trading in all other
months, and like-for-like sales are expected to be level with last
year in the first half.
Sales in the Eurozone are expected to be 5% ahead of last year,
with particularly strong sales growth in Spain, France, Italy and
Belgium. Like-for-like sales in the Eurozone are expected to show a
decline of 3%. In Germany we have strengthened management and plan
focused marketing to address trading which continues to be
difficult. Preparations are underway to reduce selling space at a
small number of German stores in order to optimise their cost
base.
Our business in the US continues to perform strongly, driven by
excellent trading at our recently opened Brooklyn store combined
with like-for-like sales growth. This, coupled with the benefit to
store profitability arising from the reduction in selling space at
Freehold and Danbury last year, has much reduced the US operating
loss.
As expected, the effect of a weaker US dollar on purchases
contracted for the first half benefited input costs. With better
buying, tight stock management and reduced markdowns, operating
margin for the first half is consequently expected to be well ahead
of last year.
Foreign exchange contracts are now in place for the majority of
the remaining purchases for the year and the strengthening of the
US dollar will result in a lower operating margin in the second
half. Our expectation for full year operating profit is
unchanged.
Retail selling space increased by 0.3 million sq ft since the
financial year end and, at 2 March 2019, 364 stores will be trading
from 15.1 million sq ft compared to 14.3 million sq ft a year ago.
Four new stores were opened in the period: Seville and Almeria in
Spain, Toulouse in France and a city centre store in Berlin,
Germany. In the UK we relocated to larger premises in Harrow and
the Merry Hill store was extended.
We still expect to open 0.9 million sq ft of new selling space
in this financial year. In the next quarter a net 0.4 million sq ft
of additional selling space is planned, with new stores in
Hastings, Bluewater, Belfast and Milton Keynes in the UK, Bordeaux
in France, Brussels in Belgium, Wuppertal in Germany and Utrecht in
the Netherlands. Our smaller store in Oviedo, Spain will close and
selling space will be reduced in the US store at the King of
Prussia mall in Pennsylvania. In April we will relocate to new
premises in Birmingham which, at 160,000 sq ft, will become our
largest store.
Our first store in Slovenia will open in the summer in Ljubljana
and, following the signing of the lease for our first store in
Poland, we have now signed the lease for our first store in the
Czech Republic, which is in the city centre of Prague.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Citigate Dewe Rogerson
Chris Barrie, Jos Bieneman Tel: 020 7638 9571
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END
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