• Group revenue year to date up 9%
• AB Sugar sales and profit remain on track for the full year
• Primark year to date sales 22% ahead
• No change in expectation of good progress in full year adjusted earnings per share
Group revenue from continuing operations for the 40 weeks to
22 June 2013 was 9% ahead of the same period last year. Movements in exchange rates had no material impact on the translation of year-to-date revenues.
Year-on-year change in revenues:
16 weeks to 22 June
40 weeks to 22 June
Sugar revenues in the last 16 weeks were 15% lower than last year which mainly reflected a different phasing of UK volumes and the timing of shipments of Zambian exports to the EU. Year-to-date sugar revenues were 1% ahead and for the full year are expected be in line with our original projections.
The UK campaign in 2012/13 produced 1.15 million tonnes of sugar which compared with 1.32 million tonnes in the previous year. Planting for the new year was later than usual and early growth was held back by unseasonably cold weather. The crop is now making better progress and we expect sugar production next year to exceed both quota and the requirements for bioethanol production. The price to be paid to growers for the 2013 beet crop, which will be processed in our 2013/14 financial year, was agreed last June at a price comparable with that paid this year. The beet price for the 2014 crop, which will be processed in our 2014/15 financial year, will be based on the already agreed price mechanism, but British Sugar’s £3 per tonne supplement to the price determined by this mechanism has been rejected by the National Farmers Union, although discussions are continuing.
Poor weather also delayed planting for the new year in Spain and the area planted is smaller than last year. We expect next year’s sugar production to fall marginally below quota.
World sugar prices have fallen steadily over the last two years and we are now seeing some softening of European prices for the forthcoming year.
At its meeting at the end of June, the European Council of Ministers confirmed that existing quota arrangements would continue until
30 September 2017 when sugar quotas for EU domestic production will end. Beyond 2017 we expect some pressure on European prices but, as a well invested business and one of the world’s lowest cost producers, we also expect to be well placed to succeed in this market. The tariffs for sugar imports into the EU are not affected.
Illovo’s 2013-14 season is now under way with a good start made in all countries. The new potable alcohol distillery at Kilombero in Tanzania is commissioning, with first production due in August. The recent weakening of the South African rand has not had a material effect on Illovo’s results when reported in sterling because the majority of its earnings are in currencies other than the rand.
In China, production volumes in the south were higher than previously forecast, at 500,000 tonnes, benefiting from a higher sucrose content in the cane and higher extraction rates. Northern production of 276,000 tonnes was marginally lower than last year. Sugar prices in the third quarter remained at a low level.
Agriculture delivered revenue ahead of expectations during the third quarter, and built on the strong performance of the first half. Revenue was 18% ahead in the quarter and 12% ahead in the year-to-date driven primarily by increased demand at our UK feed business, AB Connect. A lack of quality forage on UK farms extended the winter season for ruminant feeds and consumer demand for chicken products generated growth in poultry feed. The success of our Quantum phytase feed enzyme in the Americas and Asia drove further progress at AB Vista. Frontier traded at similar levels to last year with higher sales of crop inputs offsetting lower traded volumes of cereals.
Grocery revenues showed an improvement in the third quarter being 7% ahead of the same period last year and now 3% ahead cumulatively. Twinings Ovaltine maintained its strong growth, particularly in the US where Twinings remains the fastest growing tea brand. Twinings also performed well in the UK and France, and Ovaltine again delivered strong growth in its developing markets, notably Brazil and south east Asia.
Allied Bakeries successfully integrated the new Co-Op supply contract which commenced in April and maintained excellent service levels across the business despite major revisions to delivery routes to accommodate the addition of more than 4,000 stores. The capital expenditure programme to upgrade and modernise the bakeries continued with commissioning of the new Walthamstow plant ahead of schedule. The UK retail sugar market remains competitive and Silver Spoon’s revenues declined. New ‘stayfresh’ foil packaging for Ryvita drove volume growth in the UK and good progress was made internationally, particularly in sales to France and Canada. A new advertising campaign and focused marketing resulted in volume growth for Jordans’ Country Crisp and Granola ranges. Westmill made further progress with Lucky Boat noodles, and its recently acquired ethnic flour brand, Elephant Atta, performed in line with the acquisition business case. AB World Foods launched Blue Dragon in Mexico in May following launches earlier in the year, in Canada and Australia, which continued to perform well.
In the US, ACH benefited from lower vegetable oil prices and achieved further revenue growth in foodservice. New products drove growth in flavourings and Canada continued to perform well. Recovery at George Weston Foods in Australia was evident in this quarter with revenue ahead and an improvement in profitability. Baking achieved growth for Tip Top bread, particularly in the premium Abbott’s range which was supported with new advertising. The Don KRC meat business secured new sales contracts and further reduced factory costs.
Ingredients’ revenues were 5% higher than last year in the quarter and 2% ahead of last year on a cumulative basis. As reported in the first half, the performance of the yeast business has seen some stabilisation this year although markets remain very competitive. Commissioning of the new yeast plant in Veracruz, Mexico was completed in the period and production is now building. ABF Ingredients achieved growth in bakery, feed and speciality enzymes, extruded grain products and pharmaceutical lipid excipients. The new cereal extrusions factory under construction at Evansville, Indiana will be operational later in the summer.
Primark delivered strong revenue growth in the quarter bringing the year-to-date sales increase to 22% driven by an increase in retail selling space and good like-for-like growth. The increase in selling space was predominantly in the period leading up to Christmas.
Like-for-like sales growth in the first half was flattered by an exceptionally strong start to the year with the benefit of seasonal autumnal weather in 2012 compared with an unseasonably warm autumn in 2011. In the third quarter, like-for-like growth was subdued during the very cold months of March and April but we have seen a marked improvement with the better weather in May and June. Currency translation has had no material effect on sales for the year to date.
Extensions to the Manchester and Newcastle stores were completed on schedule and at 22 June 2013 we were trading from 257 stores with 9.0 million sq ft of selling space. New store openings will accelerate in the new financial year and include our first step into France, in Marseille.
We were deeply saddened by the tragic events caused by the building collapse at Rana Plaza in Bangladesh in April where one of Primark’s suppliers was located on the second floor. We donated food to some 1,300 families shortly after the event and we have already paid short-term financial compensation to more than 3,300 workers in the building, irrespective of their employer. Primark has committed to long-term compensation for victims who worked for its supplier, and their dependents.
The year-to-date cash flow continued to benefit from this year’s much higher profit and a lower level of capital expenditure. The working capital outflow was higher than last year, reflecting the increased scale of Primark. Payment of deferred consideration on acquisitions made in prior years amounted to £59m year-to-date. Net debt at 22 June 2013 was more than £250m lower than the half year, at £1.1bn. Further reduction is expected by the year end.
The group remains on track to make good progress in adjusted earnings per share for the full year in line with expectation.
For further information please contact:
Associated British Foods
John Bason, Finance Director
Tel: 020 7399 6500
Citigate Dewe Rogerson
Chris Barrie / Nicola Swift
Tel: 020 7638 9571
Tel: 07770 321881