TIDMABF
RNS Number : 4108E
Associated British Foods PLC
04 July 2019
4 July 2019
Associated British Foods plc
Trading update
Associated British Foods plc today issues a trading update for
the 40 weeks to 22 June 2019 which summarises the significant
trading developments since the last market update.
Trading performance
Group revenue from continuing businesses for the 40 weeks ended
22 June 2019 was 3% ahead of the same period last year at constant
currency and 2% at actual exchange rates. Excluding sugar, sales
growth from continuing businesses was 4% ahead at both constant
currency and at actual exchange rates.
For the full year we expect good profit growth in Primark and,
on an underlying basis, in Grocery. We continue to expect that the
full year profit decline in Sugar has been reflected in the first
half. Our full year outlook for the group is unchanged, with
adjusted earnings per share expected to be in line with last
year.
References to growth in the following commentary are based on
constant currency.
Grocery
Revenue in Grocery for the third quarter was 1% ahead of last
year. Operating profit margin for the full year is expected to be
ahead with good trading in Twinings Ovaltine, Acetum, AB World
Foods, ACH in the US and George Weston Foods.
We continue to take action to reduce the cost base at Allied
Bakeries and have undertaken a detailed review of our network to
optimise production capacity and locations, and routes to market.
Last month we announced our proposal to relocate our bakery
operations from Cardiff to our other facilities in the UK, the
costs of which have been included in our full year outlook for
adjusted operating profit.
Sugar
Revenue from continuing businesses at AB Sugar was in line with
last year in the third quarter. This represented an improvement on
the decline in sales in the first half and was driven by the
expected later phasing and higher sales at Illovo.
As previously outlined, EU stock levels have been tightening
during 2018/19 as a consequence of lower sugar production in the
last campaign. Early indications are that EU sugar production for
2019/20 will remain at this lower level following a reduction in
the crop area. As a consequence, stocks are forecast to remain low
which should underpin the higher spot EU sugar prices following
their recovery earlier this year.
In the UK the crop has advanced well this quarter and the
authorisation for the application of an insecticide to reduce virus
yellows infection in sugar beet is welcome. Early indications are
that production for the 2019/20 campaign will be at least the 1.15
million tonnes produced last year, with an improvement in beet
yield and a 7% reduction in crop area.
In Spain, the crop is progressing well with good water
availability in the north. We have largely concluded the
contracting of beet volumes with growers at reduced prices from
last year which has led to our contracted crop area reducing by one
third. We expect an improved operating result for Spain in the next
financial year as a result of higher prices and these lower beet
costs.
In China, some improvement over last year is expected in sugar
content of the new crop. This coming year, payment to some growers
will be linked to the sugar content of their beet. At Illovo, the
2019/20 season has now commenced, although high rainfall in South
Africa delayed the start of the campaign. Sales in the third
quarter were significantly higher than last year, particularly in
Zambia and Tanzania.
Ingredients
Revenue in the third quarter was 5% ahead of last year driven by
both AB Mauri and ABF Ingredients.
On 31 May we completed the acquisition of Italmill, a supplier
of specialist bakery ingredients from a well-invested facility in
the north of Italy. Sales in its last financial year were some
EUR35 million and this acquisition will complement our existing
Italian yeast and bakery ingredients business.
During the quarter we announced our intention to form a yeast
and bakery ingredients joint venture in China with Wilmar
International. This will combine our existing activities in China
and technical expertise with their extensive sales and distribution
capability. The joint venture will build a major yeast plant to be
co-located with Wilmar's facilities in north east China.
Agriculture
Revenue growth continued in the third quarter at AB Agri, driven
by higher feed sales. Higher feed prices have reflected an increase
in the cost of raw materials. However, margins remained under
pressure with higher input and operating costs in UK feed and
increased price competition in feed enzymes.
Retail
Sales at Primark in the year-to-date were 4% ahead of last year
at constant currency and actual exchange rates, driven by increased
selling space partially offset by a decline in like-for-like
sales.
In the UK the sales growth recorded in the first half continued
in the third quarter and Primark recorded a further significant
increase in market share. Like-for-like sales were held back by
unseasonable weather in May which compared to a favourable market
environment in the corresponding period last year. We have seen an
improvement in sales in June. Trading at our new stores was strong
and we have been encouraged by our customers' reaction to the full
product range and the new food and beverage and beauty services
offered in Birmingham High Street. Sales in the Eurozone were also
affected by the unseasonable weather in May but trading recovered
strongly in June. Sales growth was delivered in Spain, Portugal,
France and Italy. Trading continued to be weak in Germany.
Our business in the US continued to deliver encouraging
like-for-like and strong total sales growth. We expect to open over
the next twelve months the previously announced new stores at
American Dream, New Jersey and Sawgrass Mills, Florida and we have
now exchanged contracts on a store in State Street, Chicago.
Operating margin in the first half was 11.7% which was well
ahead of the margin in the same period last year of 9.8%. This was
driven by a weaker US dollar on contracted purchases, better buying
and tight stock management. We have already advised that the effect
of a stronger US dollar on purchases will reduce the margin in the
second half, but we now expect a higher offset from better buying
and lower markdowns. Our full year outlook is for a year-on-year
increase in margin.
Retail selling space increased by a net 0.8 million sq ft since
the beginning of the financial year. At 22 June 2019, 372 stores
were trading from 15.6 million sq ft of retail selling space which
compared to 14.7 million sq ft a year ago. We added 0.5 million sq
ft of space in the third quarter with nine new stores: Brussels in
Belgium, Bordeaux in France, Wuppertal in Germany, Utrecht in the
Netherlands, Hastings, Bluewater, Milton Keynes and Belfast in the
UK and our first store in Slovenia, Ljubljana. We relocated to new
premises in Birmingham High Street which, at 160,000 sq ft, became
our largest store. The contribution from these new stores was
strong with Birmingham High Street, Bordeaux and Ljubljana
exceeding our expectations. The smaller of our two stores in
Oviedo, Spain, was closed and our store in the King of Prussia mall
in Pennsylvania was downsized.
In the remainder of the year we will open a store in Bonn,
Germany bringing the gross increase in selling space to 0.95
million sq ft as previously advised.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Catherine Hicks, Corporate Affairs Director
Citigate Dewe Rogerson
Chris Barrie, Jos Bieneman Tel: 020 7638 9571
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END
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