TIDMABF
RNS Number : 9952Q
Associated British Foods PLC
08 September 2014
8 September 2014
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 full year results, 52 weeks to
13 September 2014, which are scheduled to be announced on 4
November 2014.
As previously indicated, adjusted earnings per share for the
full year are expected to be ahead of last year. Strong operating
profit performances from Primark and Grocery, and improvement in
Ingredients are expected to offset the adverse effect of lower
sugar prices and the impact of some GBP50m on the translation of
overseas results arising from the strengthening of sterling. The
net interest expense will be well below last year's charge
following the retirement of expensive long-term debt and a much
lower level of borrowings throughout the year. The underlying tax
rate will be lower than last year reflecting a further reduction in
the UK corporation tax rate and a change in the profit mix.
Net Debt
The cash inflow before financing will again be substantial this
year driven by strong profit generation, a good working capital
performance and lower interest costs. Capital expenditure will be
close to last year's level with a larger proportion of the total
spent on new stores and refits for Primark. Year-end net debt is
expected to be further reduced from last year's GBP0.8bn to some
GBP0.5bn this year.
Sugar
Revenue and adjusted operating profit for AB Sugar for the full
year will be substantially lower than last year driven by declining
European sugar prices, lower volumes in north China and a currency
translation impact on operating profit of some GBP20m. The world
sugar price continues to be unsustainably low at an average of 17
cents per pound which is well below the global average cost of
production. In Europe, prices were driven down by competition
amongst producers positioning for growth in new markets ahead of
the removal of quotas in 2017, and a higher than normal level of
quota stock across the EU as a consequence of exceptional measures
taken by the European Commission in the prior year. In China,
domestic prices were depressed by the continuation of low-cost
imports of raw sugar for refining, and Illovo's results will be
affected by low-cost imports into Tanzania and the impact of lower
pricing on Least Developed Country (LDC) exports to the EU.
British Sugar produced 1.32 million tonnes of sugar compared
with 1.15 million tonnes last year. Good growing conditions
extending into the mild winter resulted in a higher beet yield and
sugar content than last year. All UK factories performed well with
further progress achieved in health, safety and environmental
metrics and in performance improvement initiatives.
The current crop for the 2014/15 campaign has made very good
progress with early estimates suggesting that it could be well
ahead of that produced this year. We have the capacity to deal with
a larger crop and are confident of our ability to process higher
volumes than in recent years, which will be a particular advantage
in a post quota environment.
The beet price payable to growers for the current crop was
agreed in summer 2013, at a substantial increase over the price for
this year, and at an increased cost to British Sugar of some
GBP30m. Negotiations for delivered beet costs for the 2015/16
campaign have now been concluded with a reduction of some 20% on
the prior year. This will make a major contribution to ensuring a
more sustainable UK beet sugar industry reflective of the new
commercial environment for EU sugar.
In Spain, sugar beet volumes will be lower than last year as a
result of a reduction in the area planted due to waterlogged fields
in the north during the spring. Total beet sugar production was
338,000 tonnes, down from 405,000 tonnes in the previous year.
200,000 tonnes of imported raw sugar was refined at Guadalete and a
further 59,000 tonnes was co-refined at the northern beet
plants.
Contract negotiations with our EU customers for the 2014/15
marketing year are well under way with much weaker selling prices
than the current year being realised.
Illovo has continued to perform in line with our expectations.
Sugar production of 1.72 million tonnes this financial year
compared with 1.87 million tonnes last year primarily as a result
of lower production in Zambia and Swaziland where the phasing of
the campaign is slightly later than last year. The profitability of
exports of raw sugar to the EU market under LDC tariff-free import
arrangements was adversely affected by the lower pricing in that
market. Domestic pricing increased in line with local inflation
with the exception of Tanzania and South Africa which were affected
by low-cost imports. However, import tariffs have now been
introduced in South Africa which has resulted in some improvement
in local pricing.
In China, profitability has improved with the success of a
number of overhead and efficiency initiatives. In the south,
excellent growing conditions and a higher sugar content in the cane
resulted in an increase in sugar production from 500,000 tonnes
last year to 560,000 tonnes this year. However, flooding in
Heilongjiang province led to a significant reduction in beet
supplied to our factories which resulted in much lower sugar
production in the north, at 116,000 tonnes. The campaigns at Qianqi
and Zhangbei were excellent with good factory throughput and a high
sugar content in the beet following our success in working with the
growers over a number of years. A significant level of imports and
increased domestic production resulted in domestic prices being
depressed throughout the year.
Our sugar businesses are actively engaged in performance
improvement programmes aimed at extending further our cost
leadership in all regions to ensure that AB Sugar is well
positioned as a globally competitive producer. All businesses have
undertaken a review of overheads and substantial reductions have
already been delivered although the programmes are ongoing. As
previously announced, a GBP20m charge will be taken in the adjusted
operating profit this year to provide for the costs of further
overhead reduction.
Agriculture
Profit at AB Agri is expected to be ahead of last year with cash
margins in UK feed maintained and growth delivered by higher margin
businesses.
UK feed volumes remained resilient despite lower demand for
ruminant feeds due to perfect weather conditions throughout the
summer for forage. Strong growth was achieved by AB Vista driven by
the success of Quantum Blue, its phytase feed enzyme, notably in
Latin America and the Middle East but also in the EU where it was
launched recently following its approval by the European Food
Safety Authority. The new granulation facility at Evansville,
Indiana, is operating successfully providing additional capacity to
meet the increasing demand for these enzymes.
AB Agri China maintained margins through good procurement and a
favourable product mix. As meat production in China transitions
from small, family-run concerns towards large-scale commercial
operations, there is increasing demand for high-quality feed
supplied by modern, efficient feed mills. Construction and
commissioning of our new feed mill at Zhenlai was completed to plan
in August and good progress is being made with construction of
another mill at Rudong, both of which will supply these large
integrated meat processors.
Frontier saw strong demand for cereal and rape seeds with fine
weather during the planting seasons. The mild winter and warm
spring also encouraged disease which drove demand for crop inputs,
such as fungicides and fertilisers. Encouragingly, the warm dry
summer resulted in an early wheat harvest of excellent yield and
quality.
Grocery
Grocery operating profit will show good growth with George
Weston Foods in Australia, ACH Foods in the US and Twinings
Ovaltine all well ahead of last year. Revenues are expected to be
broadly level with last year at constant currency but will be
adversely affected by the strength of sterling on the translation
of overseas results.
Twinings Ovaltine delivered double digit revenue growth in tea
both in the UK, where green tea and infusions were the main
drivers, and in the US where we remain the fastest growing tea
brand. Ovaltine again performed well in its developing markets,
particularly Brazil and south east Asia, and the new Ovaltine
packing plant in Nigeria is now fully operational. Tea
manufacturing conversion costs were lower than last year with the
benefit of higher volumes, further improvements in operating
efficiency at the factory in Poland and more high-speed packing
equipment at Andover.
At Allied Bakeries, revenues and profit will be ahead of last
year with higher branded sales and an increase in market share
driven by the launch of Kingsmill Great White, a white bread with
all the fibre of a wholemeal loaf. The major capital investment
programme is nearing completion with the installation of a new
bread plant in Stevenage, which is due to be commissioned in
November, and completion of the modernisation of the Glasgow
bakery. The proposed closure of the Orpington plant was announced
in August with employee consultation currently under way.
Silver Spoon's revenue and profit will be well below last year
reflecting an especially competitive year for the UK packed sugar
market which saw the loss of a number of granulated sugar contracts
and considerably lower prices. Revenue and profit at Jordans and
Ryvita will be ahead of last year with growth in our international
business tempered by strong competition in the UK. At the end of
May we exchanged contracts to acquire Dorset Cereals, a premium
muesli brand, subject to clearance by the Competition Markets
Authority.
AB World Foods made further progress achieving revenue growth in
the UK for both Patak's and Blue Dragon. Patak's also performed
well internationally, particularly in Canada and Australia. The
core brands of Westmill Foods, Lucky Boat noodles and Elephant Atta
flour, achieved further growth.
Sales at George Weston Foods in Australia were ahead of last
year in local currency, driven by higher bread prices and meat
volumes, and profitability was much improved. Don KRC achieved
further improvements in factory efficiency and secured new business
as a result of improved customer service levels and product
quality.
Sales at ACH were ahead of last year, largely the result of
demand for Mazola with positive consumer reaction to the plant
sterols advertising campaign highlighting the lower cholesterol
benefits of corn oil. Capullo, our premium oil brand in Mexico,
increased its market share and profit further benefited from lower
input costs.
Ingredients
Ingredients' revenues will be ahead of last year at constant
currency but with the strengthening of sterling and most of its
businesses being located overseas, sales at actual rates are
expected to be lower than last year. AB Mauri built upon its much
improved first half profit performance with a strong recovery in
the second half.
AB Mauri made progress in all of its regions and in both the
yeast and bakery ingredients businesses. Good revenue growth was
achieved in South America where cost inflation was either recovered
through pricing or offset by improvements in efficiency. Higher
volumes and a focus on business development drove growth in North
America and the new yeast factory in Mexico is now supplying the
markets of North and Central America. In China, the site of our
Meishan yeast factory in Guangzhou City is to be redeveloped by the
local government, the factory has been closed and provision for the
small associated cost has been made. Customer requirements will be
met from our modern facility in Harbin.
On 31 January 2014, AB Mauri completed the acquisition of a
small bakery ingredients business operating across western Europe
which offers craft and industrial customers a range of high-quality
bakery ingredients. Its integration will broaden our product
offering and our ability to respond to customer needs in a number
of key markets.
At ABF Ingredients, growth was achieved in enzymes and the next
phase of development at the manufacturing facility in Finland is
under way. The new cereal extrusions factory at Evansville, Indiana
in the US is now in production, providing increased capacity to
meet the growing demand both for extruded rice products and AB
Vista's granulated feed products.
In view of the complementary product portfolios and common
customer base, the Australian and New Zealand yeast and bakery
ingredients businesses of AB Mauri have been integrated with the
flour milling business of George Weston Foods in Australia. This
will reduce overheads and allow the combined business to bring its
technologies to market more effectively. Reflecting this change,
the results of the Australian milling business, which were
previously included within the Grocery segment, will be included
within the Ingredients segment. When the results for the current
year are presented the comparative results for 2013 will be
restated resulting in GBP272m of sales and GBP5m of operating
profit being transferred from Grocery to Ingredients.
Retail
Sales at Primark for the full year are expected to be 17% ahead
of last year at constant currency and 16% ahead at actual exchange
rates. This excellent result was again driven by an increase in
retail selling space, like-for-like sales growth, which we expect
to be 4.5% for the full year, and superior sales densities in the
new stores. Good like-for-like sales growth was driven by highly
successful autumn/winter and spring/summer ranges. Sales over the
Christmas period were excellent and were boosted in the third
quarter by warm weather, especially in the spring and early summer,
which led to good trading across the group and outstanding results
in Spain. Early sales of the new autumn/winter range are
encouraging.
The operating profit margin of 13.1% in the first half was
higher than last year reflecting the benefit of warehouse and
distribution efficiencies and lower freight rates. These benefits
continued in the second half and, with the strong trading over the
summer resulting in a low level of markdowns, we expect the margin
for the full year to be slightly higher.
During this financial year we will have opened 1.4 million sq ft
of selling space in 28 new stores, the most recent being
Alexanderplatz in Berlin, Bath in the UK and Enschede in the
Netherlands. We closed seven smaller stores, primarily where
larger, better located, premises became available in the same city,
resulting in a net increase in selling space of 1.2 million sq ft.
This will bring the total estate to 278 stores and 10.2 million sq
ft at the financial year end. We have a very strong pipeline of new
stores in Europe extending over a number of years. We expect the
increase in selling space in the next financial year to be a little
less than 1.0 million sq ft, to be followed in the autumn of 2015
by a strong programme of openings.
Responding to the increasing scale of our business in
continental Europe, we doubled the size of our warehouse in Torija,
Spain this summer and the Mönchengladbach warehouse in Germany,
which services the stores in northern Europe, is being extended by
60% and will become operational early in 2015.
We announced in April that, after extensive research, we had
decided to take the Primark concept to consumers in the north east
of the US. A lease for some 70,000 sq ft of selling space at
Downtown Crossing in the heart of Boston, Massachusetts has been
signed and we expect this store to open in late 2015. Negotiations
are under way to secure further stores in the north east with the
intention of trading from up to ten stores by late 2016. The US
stores will be supported by leased warehousing in the region.
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, Angharad Couch, Eleni Tel: 020 7638 9571
Menikou
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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