Associated British Foods plc today issues its third quarter management statement, in accordance with the requirements of the UK Listing Authority’s Disclosure and Transparency rules, for the 40 weeks ended 20 June 2009.
Third quarter highlights
- Group revenue from continuing operations year to date up 19%
- Trading remains in line with expectations
- Continued strong trading from Primark, sales year to date ahead 20%
- Completion of Azucarera Ebro acquisition
- Plan for Illovo rights issue announced
Group revenue for the 40 weeks to 20 June 2009 was 19% ahead of the same period last year after allowing for the exit from US commodity oils and the establishment of the Stratas joint venture. The weakness of sterling continued to benefit the translation of group revenues which were ahead 8% at constant currency. The food businesses also benefited from the flow-through of price increases, most of which were achieved in the first half of last year, and some volume growth. There was continued strong trading from Primark. Group revenue unadjusted for the impact of disposals was up 14% year to date.
Year-on-year increase in revenues:
|16 weeks to 20 June 2009 ||40 weeks to 20 June 2009 |
|Total group (continuing operations) ||15% ||19% |
Sugar revenues in the last 16 weeks were 19% ahead of last year. The acquisition of Azucarera Ebro, the leading sugar producer in Iberia, was completed on 30 April 2009. Excluding the sales of Azucarera, sugar revenues were 7% ahead driven by the growth in Illovo, especially following expansion of capacity in Zambia, and by the benefit of euro strength in our EU sugar businesses.
Following an excellent campaign, the UK business has continued to perform well. In China, volumes were lower than last year as a consequence of smaller crops in both the north and the south. Sugar prices have improved considerably since the half year but are still below last year’s average.
Illovo’s strong performance continued with sugar production ahead of last year; significantly so in Zambia but also in Malawi and Mozambique. Streamlining of the South African business continued with the sale of the Umfolozi mill and agreement to sell the Pongola mill. Illovo has announced its intention to raise capital to provide for its current and longer term growth plans. ABF has indicated a willingness to support an Illovo rights offer to its shareholders at or around the prevailing share price. Further information will be advised over the coming months.
Our agriculture businesses continued the strong performance delivered in the first half. Revenue growth of 12% in the third quarter was slower than that achieved in the first half reflecting lower prices for some of our commodity feeds. The specialist nutrition business performed well, supported by new product launches, and Frontier recorded another excellent result.
Grocery revenues in the quarter increased by 10% over last year. The 22% revenue increase in the first half was largely driven by a number of substantial price increases achieved in the previous financial year. Revenues in this quarter were also impacted by consumer oil price reductions in the US and Mexico.
The performance of ACH in the US improved during the quarter. The contracts for high priced corn oil, which seriously impacted margins in the first half, have now been fully utilised and Mazola volumes and market share improved compared with the prior year with the benefit of lower selling prices. Significant progress was made with the integration of the foodservice, speciality food ingredient and retail private-label bottled oils businesses in Stratas. The ACH commodity oil processing facilities are planned to close by the end of the calendar year.
Revenues in Australia were ahead driven by price increases and the benefit of the KR Castlemaine meat business which was acquired in April 2008. There was some margin pressure in baking with consumers continuing to trade down.
Volumes at Allied Bakeries in the UK were impacted by the loss of low margin own-label and some branded business. However, profit was ahead in the quarter as margins increased with further improvement in the baking operations. Twinings Ovaltine continued in line with expectation particularly Ovaltine in Thailand and its developing markets. Everyday tea continued to see strong consumer demand but speciality teas and infusions in the UK experienced some reduction. Sugar pricing remained competitive in the UK retail market and Silver Spoon’s margins remained below last year’s level. The transfer of sugar packing from Newark to an expanded facility at Bury is on schedule to be completed in October. Trading remained difficult for Westmill Foods in the UK ethnic wholesale sector, although the rate of decline has slowed from earlier this year. Patak’s and Blue Dragon delivered double digit revenue growth although margins continued to be impacted by the higher cost of imports.
Ingredients’ revenue in the quarter was 18% ahead of last year and continued to benefit from the weakness of sterling against the US dollar and the euro. The yeast and bakery ingredients business of AB Mauri performed well, with good progress made in yeast in South America and in technical ingredients in the Americas, but with tough trading conditions experienced in India. We recently announced our intention to close our small yeast manufacturing facility in Ireland and transfer production to Hull in the UK with completion expected before the year end. We have now completed the sale of the Gilde Bakery Ingredients business in Iberia and our manufacturing plant in Portugal in accordance with the agreement reached with the EU Commission. Good sales growth continued at ABF Ingredients but its businesses experienced some pressure on margins. Expansion of the Chinese yeast plant in Harbin and the construction of an adjoining yeast extracts facility are on schedule, with commissioning planned for the end of this calendar year.
Sales at Primark since the half year were 21% ahead of last year bringing the year to date increase to 20%. This reflected the increase in retail selling space and excellent like-for-like sales growth despite trading conditions in UK clothing retailing remaining difficult. At 20 June 2009 we were trading from 190 stores with 5.7million sq ft of selling space. Since the half year we have opened our first stores in Germany, in Bremen, and Portugal, in Lisbon. A new store was opened in Barcelona in June bringing the number of stores in Spain to 13, and a new store in Tooting in the UK replaced our former small store there. We expect to open a new store in Bristol before the year end replacing one of the first Primark stores to open in the UK in 1974.
The good progress made in working capital management in the first half has been sustained, with the smaller working capital outflow more than covering the increased level of capital expenditure this year compared to last year. As a result, the cash outflow before acquisitions and disposals is lower than last year. However, net debt has increased since the half year following the Azucarera Ebro acquisition.
Trading for the group since the half year remains on track to deliver progress in operating profit for the second half. We still expect little change in earnings for the full year as the increase in operating profit will be broadly offset by a higher interest charge.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Citigate Dewe Rogerson
Jonathan Clare, Chris Barrie, Hannah Dean Tel: 020 7638 9571