Associated British Foods plc issues the following update prior to entering the close period for its interim results to 5 March 2011, which are scheduled to be announced on 27 April 2011.
The interim results for the group will be in line with expectations with all segments delivering good revenue growth. Adjusted operating profit will be ahead of last year with all segments except Ingredients making progress. Net financing costs in the first half will be at a similar level to last year and the group’s defined benefit pension schemes will generate a small financing credit this year compared with last year’s charge. The tax rate for the full year is expected to be level with last year and this will be reflected in the underlying rate applied in the interim results.
Cash flow and funding
Operating cash flow for the half year is in line with expectations with a higher outflow than last year resulting from an increase in capital expenditure, particularly in store development for Primark, and a working capital outflow partly driven by higher commodity prices. Net debt at the half year will, as anticipated, be close to £1.4bn.
Profit from Sugar in the first half will be ahead of last year driven by substantial improvements in Spain and China more than offsetting a decline in Illovo.
In the UK, the sugar campaign started well. However, the very sharp rise in temperature in January following the prolonged period of extremely cold weather before Christmas had an adverse effect on the quality of sugar beet still in the ground at that time. Beet processing is now virtually complete and sugar production is estimated to be just below 1.0 million tonnes compared with last year’s 1.3 million tonnes. The sales quota of 1.056 million tonnes will be met in full with this year’s production supplemented by third party sources of sugar and draw-downs from stock. Profit in the UK in the first half will be in line with last year. The increased costs of processing and third party purchases will be borne in the second half and will be offset, to some degree, by increased prices which will result in a net impact of some £20m in the full year.
In Spain, the campaign is progressing well. Profit will be higher than last year reflecting both improved pricing and last year having been affected by high-cost inventory brought forward from the previous year. The combined heat and power plant at Guadalete has been successfully commissioned.
As previously reported, Illovo’s operating profit will be lower than in the same period last year. Serious drought in South Africa has reduced sugar production but, with an increase in Zambian production, the total volume for the season to March 2011 is expected to be similar to the prior year.
In China, the North is on course to achieve a larger beet crop than last year driven by increased acreage and improved yields. However, in the South, cane yields have been affected by drought during the summer. Record sugar prices are expected to drive a strong increase in profit offset, in part, by lower sugar content for both beet and cane and by higher prices paid to farmers.
The UK agriculture businesses all achieved good revenue and profit growth. Sugar beet feed sales benefited from customers seeking alternatives to cereal based feeds which are at record high prices. Growth in feed enzyme products, speciality feeds and nutrition all exceeded expectations.
Strong demand for crop inputs by farmers, the rapid rise in grain prices, and farmers responding to commodity price increases by selling their grain earlier than last year, all contributed to an excellent trading result for Frontier.
Grocery profit in the first half will be ahead of last year benefiting from the much reduced level of provisioning for the cost of manufacturing reorganisation. Twinings Ovaltine and the UK businesses performed well but George Weston Foods in Australia disappointed.
Twinings Ovaltine again delivered strong sales and profit growth with notable success in the UK and Australia. In Allied Bakeries, Kingsmill achieved volume and market share increases although margins have come under pressure from the continued rise of wheat costs which have only been partially recovered through price increases.
The trading result at George Weston Foods will be significantly below last year. Price deflation, driven mainly by promotional activity across the market, and increased competition affected both the bread and meat businesses. Commissioning of the new Castlemaine meat factory is progressing satisfactorily. The recent floods in Queensland severely damaged our flour mill at Moorooka. Alternative sources of supply to the Queensland market have been secured and the clean-up process is well underway. The interim results will include provision for the cost of restoring the site to full operation.
In the US and Mexico price increases have been implemented to recover higher commodity costs, particularly in corn oil and spices, but further increases are necessary as raw material costs have continued to rise.
Although revenue will be ahead, operating profit is expected to be below last year as a result of the commissioning costs of the new yeast extracts factory in Harbin, China, higher molasses prices in China and competitive pressure in the European and US yeast businesses. Bakery ingredients performed well in South America and domestic yeast volumes in China were higher than last year. At ABF Ingredients, sales of feed and bakery enzymes and yeast extracts continued to make strong progress with enzymes particularly benefiting from the success of new products.
Trading at Primark for the first three months of the financial year was strong despite the adverse effect of bad weather during the important pre-Christmas period. Since the New Year, the performance in all our operations in Continental Europe has been very encouraging but there has been a noticeable slowing down of UK consumer demand. Revenue will be 11% ahead of last year as a result of the increase in retail selling space and like-for-like growth of 3%.
Operating profit margin in the first half will be lower than last year reflecting the increase in VAT in the UK on 4 January 2011 and the impact on input costs arising from higher cotton prices which continue to rise. As previously highlighted, margins will remain under pressure in the second half.
At the half year we will be operating from 214 stores with 6.9 million sq ft of selling space, up from 6.5 million sq ft at the financial year end. Ten new stores have been opened in the year to date including six in the UK, five of which were former Bhs stores acquired last year, two in the Canary Islands, Gelsenkirchen in Germany and Hoofddorp in the Netherlands. The development of the pipeline of new stores for Primark has been encouraging and capital expenditure both in the first half and the full year will be higher than last year. We expect to open a further six stores in the second half, three in the UK in Kings Lynn, Scunthorpe and Ilford, one in Spain and two in Portugal. Together these will increase selling space to 7.1 million sq ft.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Citigate Dewe Rogerson
Jonathan Clare, Chris Barrie, Nicola Swift Tel: 020 7638 9571