Associated British Foods plc issues the following update prior to entering its close period for its full year results to 15 September 2007, which are scheduled to be announced on 6 November 2007.
At the time of the announcement of the interim financial results in April, the Chairman stated that progress was anticipated in adjusted earnings per share over the full year, the first half having been level with the previous year. The increase in adjusted earnings will be in line with those expectations.
The strength of sterling continues to affect operating profit adversely and the impact on the translation of our overseas results will be some £19m for the financial year.
Profit from our sugar businesses is strongly ahead of last year driven by the first year contribution from Illovo, which has exceeded our expectations, and a substantial increase in profit from China. As in the first half, European sugar profit was affected by the temporary quota cut and the cost of the restructuring levy being in excess of reduced beet costs. Illovo has benefited from increased crops and strong local pricing offset, in part, by weaker world sugar prices. A record crop and firm prices have driven the increase in profit in China.
In May the European Commission published draft regulations to strengthen the existing restructuring scheme which was created to enable the reform of the EU sugar regime. If implemented, these proposals are expected to result in further quota renunciation with the aim of making good the shortfall in renounced quota which is likely to result from the current scheme. Agreement to the final form of the regulations is expected from the Council of Ministers by the end of September.
The development potential of our sugar businesses has been reinforced with the announcement of the agreement to form a joint venture with BP and DuPont to build a world scale bioethanol plant in the UK, and the investment in the beet sugar industry in Northern China with the creation of the Bo Tian joint venture.
Sales and profit at Primark will be substantially ahead of last year. After the extensive number of store openings in the first half of the year we expect to have opened a further nine new stores in the second half bringing the total number at the year end to 170. Retail selling space increased over the second half by 0.4m sq ft to 4.8m sq ft. Like-for-like sales growth in the second half is expected to be 1% and our estimate of like-for-like sales growth, for the same period, in stores unaffected by new openings is 7%. This was achieved despite the impact, common to other clothing retailers, of poor weather over the summer months. Trading in our two stores in Spain continues to exceed expectation. Overall sales growth will be ahead of that achieved in the first half although operating profit margin will be affected both by the predicted increase in depreciation arising from the investment in stores and by a higher level of discounting.
Grocery profits will be lower than last year primarily as a result of the losses incurred by Allied Bakeries, charges for factory rationalisation in ACH and Blue Dragon and adverse currency translation. The major relaunch of the Kingsmill brand in February has increased volumes and market share. Combined with a price increase this has resulted in an improving performance for Allied Bakeries. However, a further bread price increase is now required to recover the recent sharp increases in the cost of flour. In North America the cost of vegetable oils has also increased sharply leading to some margin pressure at ACH. Twinings and Ovaltine continue to deliver strong growth with the benefit of the marketing investment in their strategic markets. Since the half year we have started the restructuring of G Costa with the intended relocation of manufacturing to Poland and work is underway to bring together the Patak's and Blue Dragon businesses. In Australia, milling and baking have performed well and there has been a good improvement in the meat business.
Our Ingredients businesses are almost entirely located outside the UK. Profit has reduced primarily as a result of the adverse effect of currency translation and the impact of the strength of the Real on our Brazilian operations. In AB Mauri yeast sales continued their growth in all markets with good growth in South America and SW Asia. The South American capacity expansions have been completed. In ABF Ingredients, yeast extracts, proteins and enzymes demonstrated good growth and will benefit from the capacity added in the second half.
Expenditure on acquisitions in the year will be £138m which is primarily the acquisition of Patak's, which completed on 5 September. Proceeds from the disposal of our Scandinavian food distributor and the commodity food polyols business in the US earlier in the year amounted to £60m.
For further enquiries please contact
Associated British Foods
John Bason, Finance Director
Tel: 020 7399 6500
Citigate Dewe Rogerson
Jonathan Clare, Chris Barrie, Hannah Seward
Tel: 020 7638 9571