TIDMABF
RNS Number : 7770R
Associated British Foods PLC
02 July 2020
2 July 2020
Associated British Foods plc
Trading update
Associated British Foods plc today issues a trading update for
the 40 weeks to 20 June 2020 which summarises the significant
trading developments since the interim results announcement on 21
April and further updates on developments since our statement
issued on 1 June, COVID-19 Update, Reopening of Primark Stores and
Improved Group Cash Flow.
Trading performance
Group revenue from continuing businesses for the 40 weeks ended
20 June 2020 was 13% lower than the same period last year at
constant currency and 14% lower at actual exchange rates.
The following table sets out revenue on a segmental basis for
the third quarter, the period from 1 March 2020 to 20 June 2020,
and for the cumulative 40 weeks to 20 June 2020 and changes at
constant currency to consistent periods in the prior year.
Third constant Year to constant
quarter fx date fx
GBPm
GBPm
Grocery 941 +9% 2,630 +3%
Sugar 344 -1% 1,147 +3%
Agriculture 361 in line 1,053 -1%
Ingredients 385 +3% 1,127 +3%
Retail 582 -75% 4,292 -27%
------------- ------------------ --------- --------------------------- ---------
Total 2,613 -39% 10,249 -13%
Grocery benefited in the third quarter from increased sales
volumes through the retail channel which more than offset weaker
foodservice demand. Sugar revenues were held back by lower Illovo
export volumes in the quarter due to COVID-19-related logistical
constraints at borders and ports in Africa. Primark stores were
closed for most of the third quarter. Primark revenues for this
quarter relate to the short period of trading before the stores
closed in mid-March and the sales at the end of this quarter as
stores have progressively reopened.
Operating profit for each of Grocery, Agriculture and
Ingredients in the quarter were well ahead of last year and ahead
of our expectation. As expected, Sugar delivered a material
improvement in profit in the quarter driven by our European
businesses.
The net cash outflow for Primark for the 12 week period from 1
March to 23 May, when trading across the estate was either
non-existent or minimal, was some GBP800m. This mainly comprised
payments to Primark suppliers and operating expenses in Retail, net
of mitigation. Grocery, Agriculture, Ingredients and Sugar
delivered a net cash inflow of GBP300m in the quarter.
References to changes in revenue in the following segmental
commentary are based on constant currency.
Full year outlook
For the full year we continue to expect strong progress in the
aggregate adjusted operating profit of our Sugar, Grocery,
Agriculture and Ingredients businesses. This will be mainly driven
by a material increase in profit at AB Sugar and another year of
good margin and profit growth in Grocery.
Nearly all Primark stores are now trading again and we estimate
that, absent a significant number of further store closures,
adjusted operating profit for Primark, excluding exceptional
charges, will be in the range GBP300-350m for the full year
compared to GBP913m reported for the last financial year.
The full year effective tax rate for the group is expected to be
in the region of 30%, higher than the 22.6% reported for the half
year due to much lower taxable profits in the UK and Ireland this
year.
After the cash outflow in the third quarter, we expect the group
to return to cash generation in the final quarter. With Primark
trading again, our current expectation is that the year end net
cash balance, before lease liabilities, will be in excess of
GBP750m.
Grocery
Following flat revenues in the first half, third quarter
revenues were 9% ahead of last year, with increased retail volumes,
and margin and operating profit were strongly ahead.
Twinings Ovaltine revenues were ahead of last year. Good
Twinings sales, particularly in the US, France and Australia more
than offset a small decline in Ovaltine sales which were affected
by reduced demand in out-of-home and convenience channels. AB World
Foods, Jordans and Dorset cereals, Ryvita, Silver Spoon and Acetum
delivered much higher sales as they benefited from the increase in
consumption at home.
At Allied Bakeries an increase in Kingsmill bread volumes was
more than offset by the expected decline in private label bread
volumes. With the benefit of a range of operational and commercial
actions, the operating loss was lower than last year. Co-op has
always been one of our more challenging accounts in terms of cost
to serve with deliveries to thousands of stores which are
widespread across the UK. It is with regret that we have not been
able to agree a way forward that makes financial sense and we will
therefore be exiting our relationship with them in April 2021.
ACH in North America delivered very strong sales growth,
benefiting from higher demand for baking ingredients and corn oil.
George Weston Foods in Australia was also ahead, with higher
volumes of Tip Top bread and bakery breakfast products more than
offsetting reduced foodservice sales at the Don meat business.
Sugar
AB Sugar adjusted operating profit was well ahead of last year
in the third quarter, driven by British Sugar and our Spanish sugar
business which both benefited from higher EU sugar prices compared
to last year's levels. However, revenue was held back by lower
Illovo export volumes. Full year operating profit will be
materially ahead of last year.
Looking ahead to the 2020/21 campaigns, early indications are
that UK sugar production will be in line with the last campaign at
1.19 million tonnes, with reduced beet yields offsetting the
increase in crop area. Production in Spain is also expected to be
in line with its last campaign. Further progress is expected in
China, with a larger crop area and the benefit of some 80% of
grower contract payments now linked to beet sugar content.
Production for the new season at Illovo has commenced but will
not fully recover the production shortfall in the last campaign
caused by the early onset of the rainy season. Export sales have
been limited in this quarter by COVID-19 restrictions on
cross-border traffic between countries in southern Africa and on
port capacity. Illovo has an ongoing programme to deliver
operational and administrative cost savings. The full year profit
forecast for Illovo now includes a GBP10m charge for restructuring
which is expected to deliver benefits in the next financial
year.
Ingredients
Revenue in the third quarter was 3% ahead of last year, driven
by both AB Mauri and ABF Ingredients.
AB Mauri experienced increased demand from industrial bakers and
retail customers, with particularly strong sales in North America
and China. Completion of the yeast and bakery ingredients joint
venture in China with Wilmar International is expected by the end
of the financial year and construction of the major new yeast plant
in northern China is well underway. At ABF Ingredients, sales of
enzymes for the bakery sector were especially strong in the
quarter.
Agriculture
AB Agri revenues were in line with last year in the third
quarter with higher sales of feed enzymes offsetting lower poultry
feed volumes affected by lower foodservice demand for chicken.
All our feed mills continued to operate through the quarter.
Appropriate working practices were adopted to ensure a safe working
environment for our employees and to safeguard feed biosecurity
through this most challenging of times.
Retail
As a result of the rapid spread of COVID-19 in our markets, all
of our 375 Primark stores closed in a 12-day period to 22 March.
This resulted in a loss of sales of some GBP650m per month. Primark
has paid, or has committed to pay for, all goods which were either
in production or were finished goods in transit at the time of the
store closures, on standard terms and without discount. To reduce
the cash outflow resulting from this loss of sales, Primark
cancelled orders for goods where the handover date from the
supplier was after 17 April. It reduced its operating expenses by
over 50 percent and this limited the cash outflow to some GBP100m
per month while the stores remained closed.
As European governments have eased restrictions on retail we
have reopened stores, starting in Austria on 4 May. We prioritised
measures to safeguard the health and wellbeing of everyone in store
and to instil confidence in our store environment. These included
social distancing protocols, hand sanitiser stations, perspex
screens at tills and additional cleaning of high frequency touch
points. Personal protection, including masks and gloves, has been
made available to all employees. Customers have been free to move
through our stores, exploring the merchandise on display with
little hindrance, and are able to maintain social distancing.
Since our last trading update on 1 June, stores have reopened
more quickly than expected, particularly in Ireland. On 15 June we
reopened 179 stores, representing nearly half of our estate, across
four markets along with the new store in Trafford Centre. This was
a major achievement by our store operations teams. As of today, 367
stores have reopened with the remaining eight expected to follow in
the near future.
Country Reopening dates Stores Space
sq ft
000
Austria 4 May 5 242
Netherlands 6 May 20 971
Belgium 11 May 7 373
Germany 15 May 24 1,349
18-19 May 7 451
Italy 18 May 5 257
Slovenia 18 May 1 46
France 22 May 6 320
29-30 May 3 143
3 June 6 314
Spain 28 May 25 976
3-4 June 10 402
10-11 June 12 530
US 22 May 1 34
15 June 3 185
26 June 4 192
Portugal 1 June 6 220
15 June 4 148
ROI 12 June 16 554
15 June 20 522
England 15 June 152 6,247
Northern Ireland 18 June 4 115
22 June 5 97
Wales 26 June 8 306
Scotland 29 June 13 493
------------------------ ----------------- ------- -------------------
Stores reopened 2 July 367 15,484
US TBC 1 58
Scotland TBC 7 217
------------------------ ----------------- ------- -------------------
All stores reopened 375 15,759
Note: having reopened on 15 June, our two stores in Leicester,
UK closed again temporarily from 30 June
Trading in our reopened stores has in aggregate been reassuring
and encouraging. Over such a short period it will have been
influenced by a number of short- and medium-term factors. Consumer
demand has been strong for children's, leisure and night wear,
along with summer products such as shorts and t-shirts, and
unsurprisingly weak for formal menswear and travel-related
accessories. As indicated in our update of 1 June, most of our
regional stores are performing well, especially in retail parks.
Our stores in the centre of big cities are suffering from the
current absence of tourism and much lower commuter footfall. Sales
have been held back to some extent by a number of operating
restrictions which vary by country but continue to evolve.
Since the reopening of the first stores on 4 May, cumulative
sales for the seven-week period to 20 June were GBP322m and were
12% lower than last year on a like-for-like (1) basis. Sales in the
week ended 20 June, with over 90% of our selling space reopened,
were GBP133m and trading in England and Ireland were ahead of the
same week last year. We have continued our policy of offering the
best prices, and markdowns for the period since reopening have been
minimal.
We have made progress with landlords to secure an equitable
outcome for the rent payments for the period when we were not
trading. The discussions have been on a bilateral basis with each
landlord as we have sought to share a fair proportion of the burden
incurred during that time. Specifically, UK rent payments due for
the six month period of March to September have mostly been made,
with the remainder payable shortly, with the amount and frequency
by mutual agreement.
With our stores trading, we have now placed orders worth over
GBP800m for the autumn/winter season and, with further orders to be
placed shortly, we expect the total for the coming season to exceed
GBP1bn. Our sourcing team is in frequent and direct contact with
each of our suppliers in relation to other supportive measures.
The store opening programme planned for the second half of our
financial year has been delayed by restrictions on access to
complete the fitout of stores. However, in this quarter we have
been able to open five of the stores planned: Mons in Belgium;
Gropius Passagen in Berlin; Trafford Centre, Manchester in the UK;
Lens in France; and, earlier this week, a major new store in Plaza
de Cataluña in Barcelona, Spain. This has added 242,000 sq ft of
retail selling space. Following the downsizings of Braunschweig and
Gelsenkirchen in the first half, we have now downsized our store in
Essen, Germany in this quarter. When the final stores are reopened,
we will then be trading from 380 stores and 16.0 million sq ft of
retail selling space.
In the remainder of this financial year we expect to add five
further new stores which, along with extensions to our existing
stores in Malaga, Spain and Ubbo shopping centre in Lisbon,
Portugal, will bring our retail selling space at the financial year
end to 16.3 million sq ft. The opening dates for the new stores in
the US rely on a lifting of local COVID-19-related restrictions on
retail. The stores planned for the final quarter comprise: openings
in the Belle Epine and Plaisir shopping centres in Paris, France;
stores in the American Dream shopping centre in New Jersey, and in
Sawgrass Mills, Florida; and our first store in Poland, in Warsaw.
The new store openings in the US will increase our portfolio there
to eleven stores.
Note:
1. Like-for-like sales have been calculated on a store by store
basis, for those stores open in the period, and are measured
against the comparable trading days last year.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6545
Catherine Hicks, Corporate Affairs Tel: 07974 982 441
Director
Citigate Dewe Rogerson
Chris Barrie Tel: 07968 727 289
Jos Bieneman Tel: 07834 336 650
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END
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