TIDMABF
RNS Number : 4136D
Associated British Foods PLC
07 July 2016
7 July 2016
Associated British Foods plc
Trading update
Associated British Foods plc today issues a trading update for
the 40 weeks to 18 June 2016 which summarises the significant
trading developments since the last market update.
Trading performance
Group revenue for the 40 weeks ended 18 June 2016 was 3% ahead
of the same period last year at constant currency and 1% ahead at
actual exchange rates. This reflects stronger growth in the third
quarter of 4% at constant currency and 7% at actual exchange
rates.
The underlying operating performance of the group during the
third quarter was ahead of our expectation, with an improvement in
our sugar business, and on 28 June we completed the buyout of the
minority interests in Illovo. In the third quarter, sterling was
weaker against most of our major trading currencies compared with
the same period last year, resulting in a translation benefit.
Following the result of the EU referendum, sterling has weakened
further and at these rates we expect a bigger translation benefit
in the final quarter with no material transactional effect.
As a result, our outlook for this financial year has improved
and we no longer expect a decline in adjusted earnings per share
for the group for the full year.
Grocery
The progress of our grocery businesses continued with some
improvement in revenue growth in the third quarter. Twinings
Ovaltine made further advances in its biggest markets of the UK, US
and Thailand. Sales volumes at Allied Bakeries were well ahead of
last year although margins remain under pressure. The performance
of the bakery and meat businesses at George Weston Foods in
Australia continued to improve.
Sugar
Revenue for AB Sugar was higher than last year at constant
currency. A reduction of EU stock levels and, more recently, an
increase in world sugar prices have resulted in a strengthening of
European sugar prices. With most of British Sugar's contracts for
the current year already agreed, there will be no material impact
on its profit from the improvement in pricing until next year. All
of our sugar businesses have delivered substantial cost reductions
again this year through a combination of continuous improvement,
business transformation, capital expenditure and procurement
activities.
UK sugar production for the 2015/16 year was just short of 1.0
million tonnes with a smaller contracted growing area than last
year and average beet yields. The new crop for the 2016/17 season
is making good progress and we expect sugar production of some
930,000 tonnes from a slightly reduced contracted area. Delivered
beet costs for the 2016/17 campaign will be 15% lower than this
year. In Spain, the operating result has improved significantly
with the benefit of lower beet costs, higher production and better
pricing.
In China, beet sugar revenues in the north were well ahead of
last year with higher beet volumes, a strong operational
performance and better prices. The new crop is progressing well in
favourable growing conditions. In the south, poor sugar content in
the cane led to lower sales volumes this year but an increase in
the area under cane and good early growth shows promise for the new
season.
Illovo expects to produce 1.47 million tonnes of sugar this
year, and an improved sales mix and further cost savings across the
business have contributed to an increase in full year profit
estimates. The new refinery in Zambia was completed on time and is
now operational.
We completed the buyout of the minorities in Illovo Sugar
Limited for a purchase consideration of GBP245m. The group's
adjusted operating profit is unchanged by this, and transaction
related costs of GBP5m will be excluded from adjusted earnings. To
align Illovo's financial year end more closely with that of the
group, its results will now be consolidated for the year to 31
August which, in this year of transition, will be an 11 month
period. The net effect of this buyout and the change of reporting
calendar will be marginally accretive to the group's adjusted
earnings per share this year.
Agriculture
Revenue at AB Agri continued to decline, driven by low commodity
prices and lower volumes in UK feed. Profit margin improved with
the benefit of continued growth of feed enzymes at AB Vista.
Ingredients
Ingredients continues to build on the improvement of the last
two years and operating profit remains substantially ahead, with
the benefit of further recovery in yeast and bakery
ingredients.
Retail
Sales at Primark in the year to date were 7% ahead of last year
at constant currency driven by increased retail selling space.
Sales at actual rates in the quarter benefited from sterling
weakness and so, cumulatively, are now also 7% ahead. Like-for-like
sales in the last 16 weeks were adversely affected by unpredictable
weather patterns, with an especially cold April followed by a
return to more seasonal weather in May.
The operating profit margin in the third quarter was 11.9% which
was in line with that of the first half.
Retail selling space has increased by 0.8 million sq ft since
the beginning of the financial year and, at 18 June 2016, 310
stores were trading from 12.0 million sq ft of retail selling
space. The third quarter was a very active period with 11 new
stores opened: Broughton Park near Chester, Birmingham Fort, and
Monks Cross in York, in the UK; Almada Forum in Portugal;
Cagnes-sur-Mer, near Nice, and La Valette-du-Var, near Toulon, in
France; Leipzig in Germany; Groningen and Alkmaar in the
Netherlands; our third US store in Danbury, Connecticut; and our
first store in Italy at Arese, northwest of Milan.
We are very encouraged by the early trading of these new stores,
especially those in France, at Danbury in the US and Arese in
Italy.
The phasing of new store openings is now such that we expect to
add a further net
0.3 million sq ft of selling space by the end of this financial
year. Notably this includes two more stores in the US, at Willow
Grove in greater Philadelphia and Freehold Raceway in New Jersey,
and a doubling in size of the very successful Creteil store in
Paris.
The relocation of our UK warehouse capacity from Magna Park to
Islip in Northamptonshire is expected to be completed by September.
The new distribution centre at Roosendaal in the Netherlands will
be operational early in the new calendar year.
Looking ahead
The UK referendum decision to leave the EU has created
uncertainty in the business environment and financial markets. ABF
is an international business with diverse interests across 48
countries and a business model that, wherever possible, aligns
production with the end markets for its products. Primark operates
discrete supply chains for its stores in each of the UK, US and
Eurozone. We undertake relatively little cross border trading
between the UK and the rest of the EU.
Sterling has weakened significantly since the referendum vote.
If current exchange rates continue there will be a translation
benefit for the remainder of this financial year. In our next
financial year, these rates would have both positive and negative
effects on profit. There would be an adverse transactional effect
on the profit margin on Primark's UK sales, currently half of its
turnover, a favourable transactional effect on British Sugar's
margins and a translation benefit on group profits earned outside
the UK, which last year were some 50% of the total.
We have a strong balance sheet and we remain optimistic for the
group's continued growth, particularly with our plans for Primark's
expansion which remain unchanged.
For further enquiries please
contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399
Flic Howard-Allen, Head of External 6500
Affairs
Citigate Dewe Rogerson
Chris Barrie, Eleni Menikou Tel: 020 7638
9571
Jonathan Clare
Tel: 07770 321881
This information is provided by RNS
The company news service from the London Stock Exchange
END
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