Associated British Foods plc issues the following update prior to entering the close period for its interim results to 3 March 2007, which are scheduled to be announced on 24 April 2007.
The Chairman stated at the Annual General Meeting on 8 December 2006 that adjusted operating profit in the current year was in line with our expectations despite volatility in some commodity prices and fluctuations in currencies. Progress was anticipated in adjusted earnings per share over the full year. The increase in adjusted operating profit would be more weighted towards the second half. This continues to be the case.
Good progress was made in operating profit, particularly in our sugar businesses and in Primark. The strength of sterling adversely affected the half year by some £9m on the translation of our overseas results but this was partly mitigated by the benefit of falling energy costs. The investments in Primark stores and Illovo have increased the group's net financing costs which, together with the substantially increased minority interest arising from Illovo, will impact adjusted earnings per share as previously guided.
Profits from our sugar businesses were strongly ahead of last year with the strength of our overseas businesses more than offsetting the lower profit in the UK. The UK crop of 1.15 million tonnes will be sufficient to meet the requirements of our sugar quota and biofuel production. UK sugar prices have stabilised but profit was lower as a result of the temporary quota cut and the cost of the restructuring levy being in excess of reduced beet costs. These were mitigated in part by the additional quota acquired, a very efficient campaign and lower energy costs. Profit was higher in China, resulting from a very large crop, and in Poland with an excellent campaign at the expanded Glinojeck factory. Illovo made a strong contribution benefiting year-on-year from improved domestic sales and prices, operating cost reductions and a higher world sugar price.
The European Commission has demonstrated its desire to manage the supply of sugar in the EU in 2007/8 with its announcement of an advanced quota withdrawal of 2.4 million tonnes. Moreover the Commission is working to find a better solution to the imbalance between supply and demand which will result from the likely shortfall of quota renunciation.
Grocery profits were lower than last year, primarily as a result of a poor performance by Allied Bakeries. The competitive bread market in the UK delayed the recovery of increased wheat prices last autumn and volumes were lower than expected. We have just implemented a major relaunch of the Kingsmill brand with improved products and new packaging. There will be strong marketing support which will continue into the second half and we have increased bread prices. ACH performed well and benefited from a continued strong contribution from Capullo in Mexico. Twinings and Ovaltine continued to deliver good sales growth, particularly tea in the UK. Although volumes at Silver Spoon were ahead of expectations they were insufficient to offset the impact on profit from pricing pressure. Milling and baking in Australia achieved price increases to recover higher wheat costs and major improvements have been made in the operation of the new Sydney bakery.
Ingredients showed good progress. Yeast sales in all of AB Mauri's markets increased and there has been an encouraging improvement in profit in North America. Price increases have been implemented in many markets to recover higher molasses and energy costs. Further capacity increases are being commissioned in the growth markets of South America and Asia. Yeast extracts and Proteins generated good growth but Enzyme profits were affected by higher raw material costs. We completed the sale of our commodity food polyols business in the US this month and there will be a phased closure of the manufacturing plant in Delaware. We will recognise a loss on the disposal of this business at the half year.
Sales and profit at Primark were substantially ahead of last year. The extensive store opening programme planned for the first half has been successfully implemented. 23 new stores have opened and 5 smaller stores closed to give 161 stores with 4.4 million sq ft of retail selling space. We will open a further 8 stores in the second half taking the total retail selling space to 4.7 million sq ft by the financial year end. Primark has continued to trade well. Like-for-like sales were level with last year in the first half despite the previously highlighted impact on existing stores of adding 1.5 million sq ft of new space. Our estimate for like-for-like sales growth in stores unaffected by new openings is 4%. Trading in the new stores has been encouraging.
During the half year we disposed of our Scandinavian food distributor as well as the commodity food polyols business in the US. Proceeds were £60m.