REG - Assoc.British Foods - Trading Update

Associated British FoodsAnnouncement

20/01/2022 07:05

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RNS Number : 0160Z  Associated British Foods PLC  20 January 2022

20 JANUARY 2022

Trading update

 

Associated British Foods plc today issues a trading update for the 16 weeks to
8 January 2022 summarising the significant trading developments since the last
market update.

 

Group revenue

Group revenue from continuing operations for the 16 weeks ended 8 January
2022, compared to the 16 weeks ending 2 January 2021, was 16% higher at actual
exchange rates. At constant currency, revenue from continuing operations was
19% higher. The following table sets out revenue on a segmental basis for the
period with changes to the prior year.

 

              Year to date  Last year    Change    Change at constant currency

£m
£m
 Grocery      1,215         1,222        -1%       +2%
 Sugar        609           545          +12%      +12%
 Agriculture  545           507          +7%       +8%
 Ingredients  528           497          +6%       +10%
 Total Food   2,897         2,771        +5%       +6%
 Retail       2,672         2,031        +32%      +36%
 Group        5,569         4,802        +16%      +19%

 

Grocery, Sugar, Agriculture and Ingredients revenues in aggregate were 6%
ahead of last year at constant currency. Sugar revenues were driven by strong
European sugar prices and Ingredients revenues by a recovery in volumes from
COVID-19 affected levels last year. All businesses have experienced
inflationary pressures in raw materials, commodities, supply chain and energy.
Margins in Grocery and Ingredients were impacted where sales price actions
have lagged the effects of input cost inflation.

 

Retail sales were 36% ahead of last year at constant currency with an
operating profit margin ahead of our expectations. All of our stores are
trading and remained open throughout the period, except for short periods in
Austria and the Netherlands. Like-for-like sales in this period improved
compared to the final quarter of our 2021 financial year. The improving trend
in customer footfall was interrupted in December by the rapid rise in COVID-19
cases of the Omicron variant but we are now seeing a recovery in UK and
Ireland footfall.

 

Cash flow year-to-date has been strong compared to last year driven by good
trading, and at Primark lower markdowns and the sale of inventory carried
forward from the autumn/winter season last year.

References to changes in revenue in the following segmental commentary are
based on constant currency.

 

Grocery

Grocery sales were 2% ahead of last year. Our businesses have experienced high
levels of input cost inflation and margins were reduced in the quarter due to
the phasing of the implementation of mitigating pricing actions.

 

Twinings Ovaltine performed well this period with strong Ovaltine revenue
growth with higher volumes in emerging markets. Twinings revenue growth was
driven by the growth and new product launches in Wellbeing teas which offset a
reduction in some retail sales from the high COVID-19 affected volumes last
year.

 

ACH revenue increase was driven by several price increases for its vegetable
oils, which mitigated the impact of rising commodity costs. The sales
performance at George Weston Foods in Australia was driven by good results
from Tip Top foodservice and gluten-free retail bread products along with
higher Don meat volumes.

 

Sugar

AB Sugar revenue was 12% ahead of last year, with operating profit ahead of
last year. The revenue increase was driven by stronger European sugar prices,
higher Illovo domestic sales and improved pricing for bioethanol produced by
British Sugar at Wissington. All businesses have been focused on mitigating
the effects of significant cost input inflation, particularly in energy costs.

 

European sugar prices increased over last year as a consequence of low
European sugar stocks combined with higher world market prices. Estimates for
European sugar production in the 2021/22 campaign are slightly higher with a
recovery in yields to more normal levels, supported by good growing
conditions. Our UK and Spanish businesses have largely contracted sales for
the financial year at these pricing levels.

 

Sugar production in the UK for the 2021/22 campaign is expected to be 1.04
million tonnes, compared to 0.9 million tonnes produced in the last campaign
with higher yields more than offsetting the reduced growing area.  Energy
costs are at very high levels but forward contracts have avoided the impact of
these during the first quarter. Preparation for the start of production at the
Vivergo biofuel plant in Hull is well advanced.

 

The trading performance in Spain has improved, with higher prices and
volumes partially offset by a higher proportion of sugar produced from cane
raws.

Illovo continued to deliver strong domestic sales in Zambia, Malawi and
Tanzania along with a strong contribution from co-products in South Africa.

However, there was some disruption to production in Zambia, Eswatini and
Mozambique in the period. Contracts have been placed and site works commenced
for a major expansion of our sugar production capacity in Tanzania.

 

AB Sugar China trading performance was in line with last year.

 

Agriculture

AB Agri revenue was 8% ahead of last year with higher selling prices
reflecting commodity and energy cost increases.

Ingredients

Sales in Ingredients were 10% ahead of last year driven by volume recoveries
in a number of our speciality ingredients businesses. However, margins were
lower than the same period last year as significant inflationary pressures
impacted costs ahead of planned price actions.

AB Mauri revenues were ahead despite lower demand for retail yeast and retail
bakery ingredients compared to last year when COVID-19 restrictions were
driving the popularity of home baking. The businesses in ABF Ingredients
performed well, with good growth in enzymes, yeast extracts and a recovery in
extruded cereals.

Retail

Sales were 36% ahead of last year when we saw widespread closure of our stores
in the UK and Europe. Stores in retail parks and town centres continued to
outperform destination city centre stores with like-for-like sales in retail
parks ahead of pre-COVID levels. Over the last two years, since the start of
the pandemic, we have opened 25 stores lifting our retail selling space by 7%.

Sales in our UK stores were well ahead of last year. Like-for-like sales were
10% below two years ago and improved on the final quarter of our financial
year 2021. Trading was impacted by a decline in footfall as a result of the
rapid rise in Omicron cases but has improved in recent weeks.

Sales in Continental Europe were also well ahead of last year. Like-for-like
sales for the period were 14% below two years ago with footfall continuing to
be impacted by the high level of Omicron infections. However, total sales were
2% below two years ago which includes an increase of 12% in retail selling
space. We estimate a sales loss of some £30m relating to the short periods of
store closures in Austria and The Netherlands during the period.

Our US business was the standout performer and delivered 4% like-for-like
sales growth in the period compared to pre-COVID levels and sales were 37%
ahead of two years ago.

Total Primark sales this period were 5% lower than pre-COVID levels in the
same period two years ago. Like-for-like sales were 11% below.

Operating profit margin in the period was ahead of our expectations and is
expected to be over 10% at the half year. This reflects a recovery in sales
densities over the same period last year. The effect of inflationary pressure
on raw materials and supply chain in this first quarter has been broadly
mitigated by a favourable US dollar exchange rate compared to last year and a
reduction in store operating costs and overheads. We are proposing to simplify
our in-store UK retail management structure as part of our ongoing programme
to improve the efficiency of our store retail operations.

The pressure of disruption to the supply chain we experienced in the autumn
has alleviated although we are still experiencing some delays in dispatch at
ports of origin and we expect longer shipping times to continue for some time.

The roll-out of the Oracle stock management system across our store estate is
progressing well and we expect all stores to be equipped with state-of-the art
point of sale terminals by the end of 2022. We are also on track to launch our
new, improved customer-facing website in the UK by the end of March, and
across all our markets by the autumn. The new website will showcase many more
of our products and will provide customers with product availability by store.

Retail selling space increased by 0.2 million sq ft since the financial year
end and on 8 January 2022 we were trading from 401 stores and 17.0 million sq
ft of retail space, which compared to 16.5 million sq ft a year ago. Three new
stores were opened in the period: Catania in Sicily, Italy, and Vigo and
Girona in Spain. In addition, we relocated to larger premises in Gloucester in
the UK.

We expect to add a net 0.5 million sq ft of additional selling space this
financial year. We are making good progress with new store signings in line
with our ambition to grow our store estate with a particular focus on the
major markets of the US, France, Italy and Iberia. Since the start of the
financial year, we have signed a number of leases including a new store in the
centre of Bucharest, our first in Romania, which, with Slovakia, will take
Primark into 16 markets.

Trading outlook

In our Grocery, Sugar, Ingredients and Agriculture businesses we have seen an
escalation in the cost of energy, logistics and commodities. We have been
implementing plans to offset these through operational cost savings and, where
necessary, the implementation of price increases. We expect an increase in the
adjusted operating profit for Sugar. We expect reduced adjusted operating
profit margins in Grocery and Ingredients at the half year, due to phasing in
fully recovering cost but a recovery in the run rate of these margins by the
financial year end.

Primark's like-for-like sales to date improved on the fourth quarter of our
last financial year and delivered a strong operating profit margin. Our stores
are open, although trading is being impacted by lower footfall as a result of
the rapid rise in Omicron cases in recent weeks. It is difficult to predict
future trading conditions with certainty, but we have seen an encouraging
improvement in footfall in the UK and Ireland as the disruption from Omicron
reduces.  Looking ahead, we expect Primark sales from now to April to be
significantly better than sales in the comparable period in the last financial
year, when the estate was largely closed.

The stronger profitability of Primark, and the consequent change in the weight
of profit by tax jurisdiction for the Group will result in a decrease in the
Group's effective tax rate for the year to closer to pre-COVID levels, as
previously advised.

Taking these factors into account, our outlook for the Group is unchanged,
with significant progress, at both the half and full year, in adjusted
operating profit and adjusted earnings per share for the Group.

 

Notes:

-    Definitions of the alternative performance measures referred to in
this announcement can be found in note 30 of our Annual Report and Accounts
2021.

-    The ESG investor presentations made last year are available on our
website. A further briefing is planned for May on the environmental factors
that are most material for the Group.

 

For further information please contact:

 

 Associated British Foods:
 John Bason, Finance Director
 Tel: 020 7399 6545

 Citigate Dewe Rogerson:
 Tel: 020 7638 9571
 Chris Barrie
 Tel: 07968 727289
 Jos Bieneman
 Tel: 07834 336650

 

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