Interim Management Statement
14 January 2010
Associated British Foods plc today issues its first quarter management statement, in accordance with the requirements of the UK Listing Authority’s Disclosure and Transparency rules, for the
16 weeks to 2 January 2010.
- Group revenue (continuing businesses) up 17%, up 11% at constant exchange rates
- Trading ahead of expectations
- Strong Primark performance, sales up 19%
- Sale of Polish sugar business completed
- Illovo rights issue reduces consolidated net debt by £115m
Group revenue from continuing businesses for the first 16 weeks was 17% ahead of the same period last year. Sterling weakness, particularly against the euro and the Australian dollar, contributed to this increase and at constant exchange rates revenue was up 11%.
|16 weeks to 2 January 2010|
|Total group (continuing operations) ||17%|
Sugar revenues in continuing businesses, excluding results for Azucarera which was acquired in April 2009, were 23% ahead of last year. Including Azucarera revenues were ahead by 68%. The sale of the Polish sugar business was completed on 25 November 2009 and revenues from this business are excluded from the results of continuing businesses.
The UK business is having an excellent campaign with high beet yield per hectare and high sugar content in the beet giving rise to an estimated sugar production of some 1.3m tonnes. Profit benefited from higher volumes, better factory efficiencies and lower energy costs together with a strengthening of the euro. In Spain, sales volumes were ahead of expectations and the new refinery at Cadiz is operating well.
At Illovo, profitability was reduced by the weakening of the currencies outside South Africa, the strength of the rand on South African exports and extremely wet weather at the end of the season which reduced sugar production in South Africa and Zambia. However, Malawi and Mozambique experienced more favourable conditions and achieved good factory performances.
Local currency sugar prices in China have increased substantially and are now at record levels. Sugar production is expected to be lower than last year following the effect of drought on cane yields in the south and a smaller beet crop in the north. A significant improvement in results is expected year-on-year.
In Agriculture, UK feed revenues were ahead in all sectors except sugar beet feed which was affected by lower prices. Growth in speciality feeds exceeded expectations, enzyme sales were encouraging and a new feed mill was commissioned in China. Grain trading activity at Frontier was behind last year’s exceptional level, with less volatility in the market.
Grocery revenue was 4% ahead of last year and additionally, underlying profit margins were much improved. A strong performance by Twinings Ovaltine and the translation benefit of a strong Australian dollar more than offset revenue declines in consumer oils in North America and meat in Australia where lower prices followed commodity cost declines. The Twinings and Ovaltine brands achieved excellent revenue growth. In November we announced a proposed reorganisation of the Twinings manufacturing footprint which would result in a charge to adjusted operating profit of some £19m. Elsewhere in UK Grocery, revenues were broadly level with last year but profit margins were ahead reflecting the benefits of restructuring work undertaken last year.
In the US, Mazola volumes were higher than last year and margins improved. In Australia, baking profitability improved in an increasingly competitive market. Good progress was made with the construction of the Castlemaine meat factory. We announced the closure of the abattoir in Queensland, acquired with the KR Castlemaine business, and a provision of £10m for the cost of exiting this business will be charged in the income statement to loss on closure of a business.
Ingredients revenues were 11% ahead and at constant currency were 5% higher. The yeast and bakery ingredients business traded well with a particularly strong sales performance from the Americas. Profitability in ABF Ingredients benefited from better lactose prices in the speciality proteins business and from lower overhead costs.
Trading at Primark was strong and was ahead of our expectations. First quarter sales were 19% ahead of last year reflecting the increase in retail selling space and very good like-for-like sales growth, particularly in Spain and the UK, although sales in Ireland are seeing the effects of economic recession. At 2 January 2010 196 stores were trading with 6.1million sq ft of selling space. Since last year end we have opened 5 new stores: Cambridge and Wood Green in the UK, Frankfurt in Germany, Porto in Portugal and our first store in Belgium in Liege. We also reopened our store in Waterford in Ireland following a substantial extension. As expected, the gross margin has seen some reduction as a result of the higher cost of goods sourced in US dollars.
Operating cashflow remained strong in the period with a lower working capital outflow than last year. As expected net debt benefited from the £115m proceeds of the Illovo rights issue that was completed early in this financial year, and remained below £1bn at 2 January 2010.
Trading results for this period were very encouraging and ahead of our expectations. There remains some uncertainty over the pace of economic recovery and the outlook for the UK consumer. However, we expect good revenue growth and a significant increase in operating profit this year with the benefit of returns from our recent long-term investments and restructuring together with improvement in our Chinese and US businesses. Net financing costs will be higher but we are confident of good progress in earnings for the full year.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Citigate Dewe Rogerson
Jonathan Clare, Chris Barrie, Nicola Smith Tel: 020 7638 9571