TIDMABF
RNS Number : 2655Q
Associated British Foods PLC
11 September 2017
11 September 2017
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 for the 52
weeks to 16 September 2017(1) , which are scheduled to be announced
on 7 November 2017.
Trading performance
In our third quarter trading update on 6 July we reported an
improvement in our expectation for the group's full year underlying
operating performance as a result of a stronger profit delivery
from Primark. Since that time we have experienced an even lower
level of markdown which has further improved our full year outlook.
Adjusted operating profit for the group will be well ahead of last
year.
Net interest expense will be at a similar level to last year
and, as previously explained, an increase in other financial
expense will reflect the impact of last year's fall in bond yields
on our UK defined benefit pension scheme. The underlying tax rate
for the full year will be slightly lower than that of the first
half and, as expected, will be higher than last year which
benefited from the revaluation of UK deferred tax liabilities
following the announced reductions in the UK corporation tax
rate.
In summary, we expect to report good growth in adjusted
operating profit and adjusted earnings per share for the group for
the full year.
Currency
The result of the UK referendum on EU membership saw sterling
weaken substantially in June 2016 against all major currencies.
With some two thirds of the group's operating profit earned
outside the UK, this devaluation will result in a translation
benefit of some GBP85m this financial year, most of which arose in
the first three quarters. Sterling weakness against the US dollar
has had an adverse transactional effect on Primark's largely dollar
denominated purchases this year, whilst the euro's strength in the
second half has had a beneficial effect on British Sugar's
margin.
Next year we would expect no material translation benefit at
current exchange rates. Sterling weakness against the US dollar
will continue to have an adverse transactional effect on Primark's
margin in the first half although a benefit from the euro's
strength is expected in the second half. At current exchange rates,
we would also expect the euro's strength to benefit British Sugar's
margin next year.
References to revenue and profit growth in the following
commentary are based on constant currency unless stated
otherwise.
Net cash
The operating cash inflow will be much greater than last year
driven by the higher operating profit and a reduction in working
capital achieved with significantly lower sugar stocks and the
benefit of tight management by the businesses during the year.
Capital expenditure will be higher than last year driven by a
higher level of investment by Primark across all its countries of
operation. Expenditure in the food businesses remained at the same
level as last year.
Net proceeds from the sale of the south China sugar and US herbs
& spices businesses amounted to almost GBP400m, including debt
disposed. The higher operating cash inflow and these disposal
proceeds will result in a closing net cash position which is
expected to be some GBP650m and compares with net debt of GBP315m
last year.
Grocery
Grocery revenues from continuing businesses are expected to be
level with last year while adjusted operating profit is expected to
be lower. Twinings Ovaltine has had another good year with further
sales and profit growth at constant currency and a strong
performance at actual exchange rates. Margins improved at ACH in
the US and at George Weston Foods in Australia. However, margins
declined at Allied Bakeries as a result of a very competitive UK
bread market and inflationary cost pressures. Grocery revenue and
profit will both benefit from favourable currency translation.
The Twinings brand performed well in its core markets, gaining
further value share in Australia, the US and France. In the UK,
where significant investment in tea packaging technology is now
complete, black tea sales grew well although infusions and green
tea came under some competitive pressure. Last year's return to
growth for Ovaltine in Thailand has been sustained, driven by a
strong increase in ready-to-drink sales, and margin has also
improved.
At Allied Bakeries, the Kingsmill relaunch earlier this year,
which saw many recipe improvements and new packaging, was well
received by consumers. However, a very competitive market with low
retail prices, a resurgence of lower margin own-label as retailers
sought to differentiate their bakery offering, and inflationary
cost pressures combined to result in a significant margin decline.
Silver Spoon secured sugar price increases albeit at the expense of
some lost volume.
Jordans and Dorset cereals continued their international
expansion, now selling to 75 countries, with overseas sales of
Jordans now greater than in the UK. Trading conditions in the UK
were more challenging with an increase in own-label in the major
retailers and a greater market share being taken by the European
discounters where the focus is mainly on own-label products.
Westmill Foods recently announced another expansion of noodle
capacity at its Manchester factory, as demand has continued to
grow, and a continued focus on overhead reduction saw the
completion, in June, of the rationalisation of its distribution
operations. Patak's and Blue Dragon both performed well and remain
the largest brands in their categories in the UK.
Operating profit at ACH's continuing operations will be well
ahead of last year driven by higher revenue and lower overheads.
Mazola was supported by television advertising achieving growth in
revenue and market share. Consumer yeast, corn syrup and corn
starch all performed well both in retail and foodservice. Margins
improved again this year at George Weston Foods in Australia. Tip
Top launched Thins, a product new to the Australian market, with
all three variants achieving strong listings. Cost management
continues to be a focus area with inflationary cost increases being
covered by operational efficiencies. The Don KRC meat business
continued to grow volumes in both deli and pre-pack formats and has
worked closely with key customers to develop and stimulate the
category as exemplified by the re-launch of the deli ham range for
the Coles supermarket chain.
Acquisition
We are announcing today that we have reached agreement to
acquire Acetum S.p.A., the leading Italian producer of Balsamic
Vinegar of Modena (BVM), one of the best known vinegars in the
world, which has been granted European Protected Geographical
Indication (PGI) status due to its unique manufacturing tradition
and provenance, as well as its high quality. Completion of the
transaction is subject to antitrust clearance in Germany and
Austria.
Acetum was founded by Cesare Mazzetti and Marco Bombarda, both
of whom will remain in the business, and is based in the Province
of Modena in Northern Italy, the region traditionally associated
with balsamic vinegar. Its brands include Mazzetti, which is the
leading brand in Germany and Australia, as well as Acetum and Fini.
It also produces a range of apple vinegars and other condiments and
sells its products to more than 60 countries around the world. In
the year ended 31 December 2016 the business generated net sales of
EUR103m. We have ambitious plans to grow these brands and the
acquisition will broaden our international presence in speciality
foods.
Sugar
AB Sugar's revenue and adjusted operating profit will be well
ahead of last year on a comparable basis adjusting for Illovo's
change of year end in 2016.
Sugar production of 900,000 tonnes in the UK this year was
abnormally low as a consequence of the reduction in the contracted
growing area in order to reduce the high level of stocks brought
forward from the prior year. EU stocks will be at a low level at
the end of this marketing year and, with the abolition of quota and
export restrictions from October this year, our contracted area for
the 2017/18 season has been increased by a third. The crop is
developing well, following recent favourable rainfall and
temperatures, and the latest sugar production estimate for 2017/18
is in excess of 1.4 million tonnes. Looking ahead to 2017/18, EU
sugar prices will be below those achieved in the current year.
However, the profit impact of this is expected, to some extent, to
be mitigated by the higher production volumes and the benefit of
euro strength against sterling on euro denominated sales. Beet
costs will be in line with this year.
In Spain, beet sugar production is estimated to be 362,000
tonnes, lower than last year's 449,000 tonnes as a result of
adverse weather conditions which affected the growing area and
sucrose yields. The Guadalete refinery produced 300,000 tonnes and
imported raw sugars co-refined at the northern beet factories
produced 30,000 tonnes. Next year we expect lower EU prices to
reduce the profit at Azucarera.
Our sugar operations in north China, at Zhangbei and Qianqi,
processed a record beet crop with 180,000 tonnes of sugar produced.
Market prices have been stable and profit will be similar to last
year. The crop for 2017/18 is progressing well and, with a smaller
growing area to enable the optimisation of plant utilisation and
processing efficiency, production is estimated at 175,000 tonnes of
sugar.
Illovo's 2016/17 season, which ended in March 2017, finished
strongly and this has been followed by better growing conditions in
the new season. Sugar production for the financial year is expected
to be 1.65 million tonnes, compared with 1.40 million tonnes last
year on a comparable basis, which, combined with the continuing
performance improvement activities, will deliver profit ahead of
last year.
Agriculture
AB Agri revenues will be well ahead of last year with growth in
all businesses and the benefit of a full year's trading from
Agrokorn, the specialist protein business in Denmark which was
acquired last year. Operating profit will be lower than last year
reflecting strong competition and higher raw material costs in the
UK and China feed businesses.
Overall demand for feed in the UK has been weak and the smaller
sugar beet crop reduced availability of co-product feedstocks. The
new anaerobic digestion (AD) plant in Yorkshire was commissioned
during the year and sales of new AD products and services under the
Amur brand have commenced. Smaller arable crops and lower market
volatility adversely affected Frontier's grain trading performance,
but the results from its crop inputs business were strong.
AB Vista performed well, increasing enzyme revenues. The Primary
Diets starter feed business had a very good year, achieving strong
export growth into continental Europe, and the new starter feed
factory in Spain is now operational. Feed sales in Asia began the
year well with strong demand particularly in Vietnam and Thailand.
In China, we have increased finished feed capacity and our first
standalone pre-mix feed mill is now operational.
Ingredients
Ingredients' revenues will be ahead of last year and operating
profit will again be well ahead with a further increase in
margin.
AB Mauri delivered another year of significant improvement with
growth achieved in both yeast and bakery ingredients. North America
benefited from successful bakery ingredient product launches while
the market for bakery yeast remains highly competitive. The EMEA
region delivered profit growth despite the maturity of the European
market and Asia's results improved following last year's
rationalisation of production facilities in China. Although the
economic climate in South America remains challenging, operating
performance was robust. In January 2017 we completed the
acquisition of Specialty Blending based in Cedar Rapids, Iowa.
Integration has progressed steadily and its cake and doughnut mixes
have benefited from the application of our ingredients'
technologies.
ABF Ingredients will deliver strong sales and profit growth for
the full year with a further improvement in margin. Sales of feed
enzymes to AB Vista were well ahead of last year which drove high
factory utilisation and better overhead absorption and in the
second half we completed a 40% increase in enzyme production
capacity in Finland. Abitec, our speciality lipids business in
North America, had another year of double digit sales increases
driven by the significant growth in generic pharmaceutical drugs.
To meet increasing demand and to improve our research capability,
further investment has been made this year at the Janesville,
Wisconsin plant.
Retail
Sales at Primark for the full year are expected to be 13% ahead
of last year at constant currency and on a comparable week basis,
driven by increased retail selling space and 1% growth in
like-for-like sales(1) . On the same comparable basis but at actual
exchange rates, sales are expected to be 20% ahead.
Primark has performed particularly well in the UK where full
year sales are expected to be 10% ahead of last year on a
comparable basis and our share of the total clothing market has
increased significantly. After a good first half, third quarter
trading was particularly strong in the lead up to Easter,
benefiting from comparison with prior year results that were
affected by poor weather and an earlier Easter holiday. Favourable
weather in the fourth quarter and the strength of our consumer
offering resulted in markdowns at lower levels than normal. Early
trading of the new autumn / winter range has been encouraging.
In the US we have continued to fine tune our ranges, opened
three stores during the year and extended the Downtown Crossing
store in Boston by 20% increasing it to 92,000 sq ft. Our ninth
store is scheduled to open next year in Brooklyn, New York.
The first half operating profit margin of 10% declined from
11.7% in the first half last year, reflecting the strength of the
US dollar on input costs. In our interim results we explained that
the full effect of sterling weakness against the US dollar would
have a greater impact on margin in the second half because currency
hedges maturing in that period would be at less advantageous rates.
However, with the benefit of input margin mitigation and lower
markdowns we now expect the full year margin to be better than the
first half.
With most of next year's first half UK purchases contracted at
the weaker sterling/US dollar exchange rate than the same period
last year, there will be an adverse effect on margin in the first
half. However, the strengthening of the euro against the US dollar
in recent months will have a beneficial transaction effect on
Primark's eurozone margins particularly in the second half of next
year if these rates prevail. With some cost increases and markdowns
returning to a more typical level, we expect full year margins to
be similar to this year.
This year's increase in the scale and breadth of the Primark
estate was very strong: 1.5 million sq ft of selling space and 30
new stores were opened across nine countries. This brings the total
estate to 345 stores and 13.9 million sq ft at the financial year
end. Eleven stores were added in the UK; three in each of Spain,
France, the Netherlands, Italy and the US; two in Germany and one
each in Belgium and Ireland. The fourth quarter saw the addition of
0.3 million sq ft with four stores added in the UK, our fourth
Italian store in Verona and one in France in the Val d'Europe
shopping centre close to Disneyland, Paris. Our city centre
flagship store at Oxford Street East was extended by 40% during the
year, increasing it to 114,000 sq ft. The stores in Sheffield and
Reading were relocated to bigger, better locations and two stores
have been temporarily relocated while their existing sites are
redeveloped.
In the next financial year we are planning over 1.2 million sq
ft of additional selling space. France, Germany and the UK will see
the most space added and overall we will open 19 new stores
together with a number of relocations and extensions. The larger
stores will be in Stuttgart and Munich in Germany; Toulouse and
Bordeaux in France; and Antwerp in Belgium. Following the
investment in warehouse capacity over the last few years, no
further investment in distribution is planned next year.
For further enquiries please
contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399
Flic Howard-Allen, Head of 6500
External Affairs
Citigate Dewe Rogerson
Chris Barrie, Eleni Menikou Tel: 020 7638
9571
Jonathan Clare Tel: 07770 321881
(1) 2016 was a 53 week year for Primark, British Sugar,
Agriculture and the UK Grocery businesses. The effect on reported
sales growth for British Sugar, Agriculture and UK Grocery was not
significant but for Primark the reported sales increase at constant
currency is expected to be 11% (13% on a comparable week basis),
and 18% at actual exchange rates (20% on a comparable week
basis).
This information is provided by RNS
The company news service from the London Stock Exchange
END
TSTLPMJTMBMMBMR
(END) Dow Jones Newswires
September 11, 2017 02:00 ET (06:00 GMT)
Associated British Foods (LSE:ABF)
Historical Stock Chart
From Apr 2024 to May 2024
Associated British Foods (LSE:ABF)
Historical Stock Chart
From May 2023 to May 2024