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Associated British FoodsAnnouncement

06/09/2014 14:36

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Associated British Foods PLC
10 July 2014 
 
10 July 2014 
 
Associated British Foods plc 
 
Interim management statement 
 
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.  The figures stated below relate to the 40
weeks ended 21 June 2014. 
 
Headlines 
 
 ·  Primark third quarter sales 22% ahead at constant currency                   
 ·  Continued profit progress at Ingredients                                     
 ·  EU sugar prices have continued to fall                                       
 ·  Full year adjusted earnings per share now expected to be ahead of last year  
 
 
Revenue summary 
 
Group revenue from continuing operations for the 40 weeks to 21 June 2014 was
2% below the same period last year but 2% ahead at constant currency. 
 
Year-on-year change in revenues: 
 
              16 weeks to 21 June 2014  40 weeks to 21 June 2014  
              Actual rates              Constant rates            Actual rates  Constant rates  
 Sugar        -26%                      -20%                      -23%          -19%            
 Agriculture  -11%                      -10%                      -6%           -5%             
 Grocery      -12%                      -5%                       -7%           level           
 Ingredients  -5%                       +9%                       -4%           +6%             
 Retail       +19%                      +22%                      +16%          +17%            
                                                                                                
 Total group  -3%                       +3%                       -2%           +2%             
 
 
Exchange rates 
 
Sterling was stronger than most of our major currencies in the first half of
this financial year but the strengthening was markedly towards the end of that
period.  That strength has continued throughout the third quarter with the
euro also now weaker than last year.  This has had a negative impact on the
translation of sales and profits from overseas businesses, particularly in
Grocery and Ingredients.  In determining the adjusted earnings per share
outlook for the full year, the likely negative impact arising from currency
translation, if current exchange rates prevail, will be some £50m compared
with last year's result. 
 
Sugar 
 
Sugar revenues in the last 16 weeks were 20% lower than last year at constant
currency, driven by substantially lower sugar prices, weaker EU sales volumes
and lower sugar production in North China.  Year-to-date sugar revenues at
constant exchange rates are 19% behind last year. 
 
The UK campaign in 2013/14 produced 1.32 million tonnes of sugar compared with
1.15 million tonnes in the previous year, with beet yield per hectare 12%
ahead.  Record operating performances were achieved at all plants, with an
increase in capital expenditure to enable further improvements in cost
efficiency and sustainability. 
 
The new crop for the 2014/15 season has made very good progress.  The beet
price payable to growers for this crop was agreed in summer 2013, at a
substantial increase over the price for this year, and at a cost of some £30m.
 Discussions are under way with the National Farmers Union to agree future
beet prices beyond the 2014/15 season that will ensure a sustainable UK beet
sugar industry reflective of the new commercial environment for EU sugar. 
 
A reduction in sugar production in Spain was driven by a substantially lower
volume in the north, which is expected to be partially mitigated by a stronger
performance in the south. 
 
In response to the substantial profit decline in our sugar businesses, and in
addition to the continuous improvement programme that is delivering cost
reductions across the AB Sugar group, we are planning to undertake a further
overhead reduction exercise.  The details will become clearer during the
fourth quarter, but we expect to take a one-time charge of some £20m in this
year's adjusted operating profit to provide for the associated costs. 
 
Illovo's 2014/15 season is now under way with a generally good start for all
countries.  Continued low world sugar prices have impacted revenues both in
Tanzania, which is a deficit market, and South Africa where low-priced imports
have entered the market in competition with locally produced sugar.  EU export
proceeds were lower than anticipated as a consequence of the deterioration of
EU prices although it is hoped that new tariff arrangements in South Africa
and import controls in Tanzania will alleviate the situation in the near
term. 
 
In China, final production volumes in the south were 560,000 tonnes, 60,000
tonnes ahead of the prior year as a consequence of an increase in cane yields
and a higher sucrose content.  Production in the north was 116,000 tonnes, a
reduction from the 277,000 tonnes produced last year as a result of severe
flooding in Heilongjiang and fewer factories in operation following last
year's rationalisation.  An overhead reduction exercise has more than offset
the reduced profitability arising from lower sugar prices. 
 
EU sales prices have continued to fall as a consequence of the exceptional
measures taken by the European Commission to increase the availability of
quota sugar in the EU, and heightened competitor activity as the industry
looks ahead to the reform of the sugar regime at the end of September 2017. 
Early customer negotiations have commenced for the 2014/15 UK contract round
and whilst prices remain weak, early indications are that they are now
stabilising, albeit at lower prices than we previously expected. 
 
Agriculture 
 
Agriculture revenues were 10% behind last year in the quarter at constant
currency with lower commodity prices reducing sales values at AB Connect but
with continued strong growth for AB Vista driven by the success of its Quantum
phytase feed enzyme.  Feed volumes were resilient supported by strong demand
from dairy farmers for sugar beet feed.  The impact on profit from the revenue
decline was mitigated by the maintenance of cash margins in AB Connect and the
growth achieved by higher margin businesses such as
AB Vista. 
 
Grocery 
 
Grocery revenues were 5% lower than last year at constant exchange rates, with
the majority of the decline arising at Silver Spoon as a result of lost
contracts and considerably lower UK sugar pricing.  Allied Bakeries achieved
market share growth for Kingsmill although trading conditions continued to be
challenging.  The profit and sales momentum at Twinings Ovaltine continued in
the period.  Revenues at George Weston Foods made further progress as meat
volumes continued to improve, and trading at ACH remains encouraging with a
particularly good performance in the quarter from Capullo, our premium oil
brand in Mexico. 
 
Ingredients 
 
With most of its businesses located overseas, the Ingredients segment was
particularlyaffected by the strength of sterling in the last quarter with
reported revenues 5% lower than last year but 9% ahead at constant currency. 
The profit progress made in the first half has continued, with all regions
showing improvement, particularly the Americas. 
 
Retail 
 
Primark's revenue growth in the quarter accelerated to 22% at constant
exchange rates bringing the year-to-date sales increase to 17%.  This was
driven by like-for-like growth, a further increase in retail selling space and
superior sales densities in our new stores.  In the third quarter, the strong
like-for-like sales growth benefited from the warm weather, especially
compared to the very cold months of March and April last year, and built
further on strong trading in May and June last year.  Year-on-year selling
space has increased by 1.0 million square feet from 9.0 million square feet
last year.  Operating margin remained in line with the first half, continuing
to benefit from warehouse and distribution efficiencies and lower freight
rates. 
 
At 21 June 2014 we were operating from 275 stores and total retail selling
space has now reached 10 million square feet.  Since the half year a further
nine stores have been opened including relocations in Cardiff and Plenilunio,
in Spain.  We now have five stores in France with three very successful
openings during the quarter in the suburbs of Paris, adding to Marseilles and
Dijon which were opened in the first half.  We also opened in Cologne in
Germany, Nijmegen in The Netherlands, Logrono in Spain and Canterbury in the
UK.  A small store in Dundalk in the Republic of Ireland was closed in the
period.  Plans for the first store openings in the north east of the USA
towards the end of 2015 remain on track. 
 
We have a very strong pipeline of new stores in Europe extending over a number
of years.  With our current phasing of store openings, we now expect a net
increase in retail selling space in this financial year of 1.2 million square
feet, which is actually 1.4 million square feet of additions less 0.2 million
square feet of closures arising where old stores are too small or have been
relocated.  We then expect the increase in selling space in the next financial
year to be a little less than 1.0 million square feet, to be followed in the
autumn of 2015 by a strong programme of openings. 
 
Financial position 
 
The cash flow continued to benefit from much improved working capital. 
Capital expenditure year-to-date is £70m higher than last year with a higher
proportion spent on new stores for Primark.  Net debt at 21 June 2014 was
£287m lower than the half year at £540m, and a further reduction is expected
by the year end. 
 
Trading outlook 
 
Full year adjusted earnings per share are now expected to be ahead of last
year, with better profit progress in Retail, Grocery and Ingredients
offsetting the adverse effects of lower sugar prices and the strengthening of
sterling. 
 
 For further enquiries please contact:                                                                                                   
 Associated British Foods                                                                                                                
 John Bason, Finance Director                      Flic Howard-Allen, Head of External Affairs  Tel:         020 7399 6500               
                                                                                                                                         
 Citigate Dewe Rogerson                                                                                                                  
 Chris Barrie, Eleni Menikou Jonathan Clare                                                     Tel:   Tel:  020 7638 9571 07770 321881  
 
 
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