ABF: Pre Close Period Trading Update

London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issued the following update prior to entering the close period for its interim results to 28 February 2015 which are scheduled to be announced on 21 April 2015.

Underlying trading remains in line with expectations and the Group continues to expect a marginal decline in adjusted earnings per share for the group for the full year. As previously indicated, the adjusted operating profit for the first half is expected to be lower than last year. Sterling has strengthened against most of our major trading currencies which has had a negative effect on the translation of overseas results. Adjusted earnings per share are expected to be in line with last year, largely benefiting from a lower tax rate. Primark has performed well and its expansion is continuing, Grocery is expected to deliver a first half operating profit in line with last year, and Ingredients and Agriculture have made excellent progress in operating profit building on their very positive performances last year. As previously indicated, profitability at AB Sugar will be substantially lower.

Cash flow and funding

We expect an operating cash outflow in the first half of the year. Working capital will increase, largely reflecting a higher level of sugar stock-holding, while capital expenditure will be comparable with last year. 60 million GBP was spent on the acquisition of Dorset Cereals last October. Net debt at the half year is expected to be some 0.8 billion GBP, similar to the position at the last half year, reflecting the acquisition, a higher level of working capital and a 107 million GBP translation impact on our non-sterling denominated net debt.

Sugar

The profit outlook for Sugar in the full year remains unchanged. Revenue in the first half will be substantially lower than last year with profitability close to break-even. The second half will benefit from performance improvement initiatives and the non-recurrence of last year´s cost of restructuring the EU sugar businesses. EU sugar prices, as previously indicated, have been lower in the period leading to lower revenues and margins for both the UK and Spain, although there has been some recent stabilisation. Given the difficult commercial environment, AB Sugar has focused on the management of its cost base: a continuous improvement programme across all businesses, overhead reduction, and lower beet and cane costs.

The campaigns in the UK and Spain were excellent with record factory performances and high product quality achieved throughout the period. We have benefited from a large UK crop and good extraction rates. UK sugar production in the current year is now estimated to be 1.44 million tonnes, compared with last year´s 1.32 million tonnes.

The wheat-fed bioethanol plant operated by Vivergo Fuels in Hull is now achieving rated output and is focused on maintaining efficient production. However, as announced at the beginning of February, the interim results will include a non-cash exceptional charge of 98 million GBP to impair the group´s investment in this joint venture with BP and DuPont, as a result of the continuing fall in crude oil and bioethanol prices, and the further weakening of the euro against sterling.

Illovo´s production season is almost complete and off-season maintenance is now well under way. Total production volume will be marginally lower than last year as a result of drought in South Africa but elsewhere volumes have been higher. Zambia achieved record sugar production and we will be implementing plans for further development of the factory to increase sugar refining capacity, to supply higher quality sugars to the regional market. The new potable alcohol distillery in Tanzania is operating effectively with consistent production achieved throughout the period. Low-cost imports held back domestic prices in Tanzania, in Malawi the appreciation of the kwacha held back domestic sales volumes, and next season´s volumes in South Africa are not expected to recover from this season´s low levels.

We have already announced our intention to cease sugar operations at our factories at Yi´an and BoCheng in Heilongjiang province in north east China. Achieving beet yields sufficient to provide these factories with an adequate supply of raw material, at a competitive cost, has been particularly challenging and we concluded that these factories were likely to remain uneconomic for the foreseeable future. We also announced action to be taken to reduce associated overheads. The group´s interim results will include a loss of some 128 million GBP, reflecting the write-down of assets and including one-off cash costs of 18 million GBP, all of which will be excluded from adjusted operating profit. Following this action, we expect all of our remaining sugar factories in China to be cash generative, even at current low sugar prices.

Agriculture

At AB Agri, excellent trading by AB Vista and strong commercial and operational performances across the businesses will drive first half adjusted operating profit well ahead of last year. An abundant availability of forage crops and falling commodity prices will result in revenue being lower than last year for our UK feed business.

Further strong growth in the Americas for Quantum Blue, our phytase feed enzyme, and encouraging sales in the EMEA region were the principal drivers of AB Vista´s performance. In China, despite weak market conditions, our compound feed business performed well with success for its strategy of targeting feed sales to large farms. The industry in China is moving from traditional backyard farms to larger, more professionally managed, farms demanding higher quality service, differentiated products and food safety credentials which our business is well placed to deliver. Frontier Agriculture, our joint venture arable operation, traded at similar levels to last year and, after a slow start, sales volumes of crop inputs are now improving as UK farmers commit to fertiliser purchases.

Grocery

Revenue and profit in the first half are expected to be close to last year at both constant currency and at actual exchange rates with the translation benefit of a strong US Dollar offsetting weakness against sterling elsewhere.

Twinings Ovaltine made excellent profit progress in the period. Tea sales grew in the UK and Australia, where record market shares were achieved, and very strong growth was realised in its developing markets of China and India. Profit growth was driven, not only by higher sales, but also by lower manufacturing conversion costs and further operating efficiencies in the integrated tea supply chain. Ovaltine continued to perform well in its developing markets.

The UK bakery market remains intensely competitive with a combination of over-capacity in the industry driving manufacturers towards marginal pricing, and retailers seeking to prove their value credentials in essential shopping items such as bread. As retailers drive for value and range simplification, already tight margins have come under further pressure and Allied Bakeries´ profit will be lower than last year as a result. Since its acquisition last October, Dorset Cereals has traded well and its integration with Jordans Ryvita is on track.

At ACH in North America, Mazola achieved strong volume growth following increased investment in advertising and marketing. Volume and market share growth was achieved by Capullo in Mexico where margin also benefited from lower oil costs.

This was a disappointing period for George Weston Foods in Australia. Bread margins have been reduced by a combination of competitive price pressure and retailers featuring bread in their drive for lower prices. Higher-cost and variable-quality raw materials reduced margins at our meat business, Don KRC, in the first half, but we expect to benefit from supply improvements in the second half of the year.

Ingredients

Revenues in the first half are expected to be ahead of last year at constant currency and broadly the same as last year at actual rates. Operating profit for the half year will be well ahead of last year, with a good recovery in yeast and bakery ingredients and a stronger performance from ABF Ingredients.

Revenue and profit improvement at AB Mauri was achieved in most areas of the business as benefits from the continuous improvement programmes were delivered, particularly in the optimisation of the supply chain. However, trading conditions in South America proved to be challenging due to high inflation in Argentina and Venezuela and an economic slowdown in Brazil. In January we opened a new technology centre in St. Louis, Missouri which will enhance our ability to support customers in North America with a range of yeast and bakery ingredient solutions. The integration of the bakery ingredients business in western Europe, which was acquired last year, is progressing to plan. Good progress was made in the period in the newly integrated yeast and bakery ingredients business in Australia and New Zealand.

ABF Ingredients delivered excellent growth in sales and profits in the first half driven primarily by the enzyme business.

Retail

Sales at Primark are expected to be 16 percent ahead of last year at constant currency driven by an eleven percent increase in retail selling space and very high sales densities in stores opened during the last year. As a result of the weakening of the euro against sterling, total Primark sales are expected to be twelve percent ahead of the same period last year at actual exchange rates. All five of our French stores opened over the last year have traded exceptionally well. Sales for the group in the last three months, including the important Christmas period, were strong and cumulative like-for-like sales have improved since the January trading update and are now level with last year. Total first half like-for-like sales growth for the group was held back by the unseasonably warm weather in the autumn across northern Europe and the impact, on existing stores, of new store openings in the Netherlands and Germany. However, total sales in northern continental Europe were well ahead of last year.

Operating profit margin in the period has been in line with expectations, although lower than last year as a result of a higher level of mark-down.

Retail selling space has increased by 0.5 million square feet since the financial year end and, at 28 February 2015, 287 stores will be trading from 10.7 million square feet of retail selling space. We opened ten new stores in the period including the relocation of the Northampton store to much larger premises. We opened four stores in the Netherlands, bringing our total there to twelve and increasing space by some 60 percent, and three stores in Germany including 80’000 square feet in Dresden. We have a very strong pipeline of new stores in Europe extending over a number of years. We continue to expect the increase in selling space for the current year to be less than 1.0 million square feet including further stores or extensions in Germany, Belgium and the UK.

Significant investment has been made, and is planned, to expand warehouse capacity in Europe. At the beginning of this year the capacity at Torija in northern Spain was doubled and the extension of our Mönchengladbach warehouse in Germany, which increased capacity by 60 percent, is now fully operational. We plan to open a new warehouse in the autumn in Bor, on the western border of the Czech Republic, to service stores in Austria and Germany.

Good progress has been made in building the management team in the US in anticipation of our launch in late 2015. We have signed eight leases for stores in the north east of the country, including seven from Sears. Six store locations have now been announced including Downtown Crossing in Boston and five in the following shopping malls: King of Prussia and Willow Grove Park, PA; Staten Island, NY; Danbury Fair, CT; and Freehold Raceway, NJ. A lease has also been signed for warehouse space located in the Lehigh Valley area of Pennsylvania.

ABF: Pre Close Period Trading Update

London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issues the following update prior to entering the close period for its full year results, 52 weeks to 13 September 2014, which are scheduled to be announced on 04 November 2014.

As previously indicated, adjusted earnings per share for the full year are expected to be ahead of last year. Strong operating profit performances from Primark and Grocery, and improvement in Ingredients are expected to offset the adverse effect of lower sugar prices and the impact of some 50 million GBP on the translation of overseas results arising from the strengthening of sterling. The net interest expense will be well below last year´s charge following the retirement of expensive long-term debt and a much lower level of borrowings throughout the year. The underlying tax rate will be lower than last year reflecting a further reduction in the UK corporation tax rate and a change in the profit mix.

Net Debt

The cash inflow before financing will again be substantial this year driven by strong profit generation, a good working capital performance and lower interest costs. Capital expenditure will be close to last year´s level with a larger proportion of the total spent on new stores and refits for Primark. Year end net debt is expected to be further reduced from last year´s 0,8 billion GBP to some 0,5 billion GBP this year.

Sugar

Revenue and adjusted operating profit for AB Sugar for the full year will be substantially lower than last year driven by declining European sugar prices, lower volumes in north China and a currency translation impact on operating profit of some 20 million GBP. The world sugar price continues to be unsustainably low at an average of 17 cents per pound which is well below the global average cost of production. In Europe, prices were driven down by competition amongst producers positioning for growth in new markets ahead of the removal of quotas in 2017, and a higher than normal level of quota stock across the EU as a consequence of exceptional measures taken by the European Commission in the prior year. In China, domestic prices were depressed by the continuation of low-cost imports of raw sugar for refining, and Illovo´s results will be affected by low-cost imports into Tanzania and the impact of lower pricing on Least Developed Country (LDC) exports to the EU.

British Sugar produced 1,32 million tonnes of sugar compared with 1,15 million tonnes last year. Good growing conditions extending into the mild winter resulted in a higher beet yield and sugar content than last year. All UK factories performed well with further progress achieved in health, safety and environmental metrics and in performance improvement initiatives.

The current crop for the 2014/2015 campaign has made very good progress with early estimates suggesting that it could be well ahead of that produced this year. We have the capacity to deal with a larger crop and are confident of our ability to process higher volumes than in recent years, which will be a particular advantage in a post quota environment.

The beet price payable to growers for the current crop was agreed in summer 2013, at a substantial increase over the price for this year, and at an increased cost to British Sugar of some 30 million GBP. Negotiations for delivered beet costs for the 2015/2016 campaign have now been concluded with a reduction of some 20 percent on the prior year. This will make a major contribution to ensuring a more sustainable UK beet sugar industry reflective of the new commercial environment for EU sugar.

In Spain, sugar beet volumes will be lower than last year as a result of a reduction in the area planted due to waterlogged fields in the north during the spring. Total beet sugar production was 338’000 tonnes, down from 405’000 tonnes in the previous year. 200’000 tonnes of imported raw sugar was refined at Guadalete and a further 59’000 tonnes was co-refined at the northern beet plants.

Contract negotiations with our EU customers for the 2014/2015 marketing year are well under way with much weaker selling prices than the current year being realised.

Illovo has continued to perform in line with our expectations. Sugar production of 1,72 million tonnes this financial year compared with 1,87 million tonnes last year primarily as a result of lower production in Zambia and Swaziland where the phasing of the campaign is slightly later than last year. The profitability of exports of raw sugar to the EU market under LDC tariff-free import arrangements was adversely affected by the lower pricing in that market. Domestic pricing increased in line with local inflation with the exception of Tanzania and South Africa which were affected by low-cost imports. However, import tariffs have now been introduced in South Africa which has resulted in some improvement in local pricing.

In China, profitability has improved with the success of a number of overhead and efficiency initiatives. In the south, excellent growing conditions and a higher sugar content in the cane resulted in an increase in sugar production from 500’000 tonnes last year to 560’000 tonnes this year. However, flooding in Heilongjiang province led to a significant reduction in beet supplied to our factories which resulted in much lower sugar production in the north, at 116’000 tonnes. The campaigns at Qianqi and Zhangbei were excellent with good factory throughput and a high sugar content in the beet following our success in working with the growers over a number of years. A significant level of imports and increased domestic production resulted in domestic prices being depressed throughout the year.

Our sugar businesses are actively engaged in performance improvement programmes aimed at extending further our cost leadership in all regions to ensure that AB Sugar is well positioned as a globally competitive producer. All businesses have undertaken a review of overheads and substantial reductions have already been delivered although the programmes are ongoing. As previously announced, a 20 million GBP charge will be taken in the adjusted operating profit this year to provide for the costs of further overhead reduction.

Agriculture

Profit at AB Agri is expected to be ahead of last year with cash margins in UK feed maintained and growth delivered by higher margin businesses.

UK feed volumes remained resilient despite lower demand for ruminant feeds due to perfect weather conditions throughout the summer for forage. Strong growth was achieved by AB Vista driven by the success of Quantum Blue, its phytase feed enzyme, notably in Latin America and the Middle East but also in the EU where it was launched recently following its approval by the European Food Safety Authority. The new granulation facility at Evansville, Indiana, is operating successfully providing additional capacity to meet the increasing demand for these enzymes.

AB Agri China maintained margins through good procurement and a favourable product mix. As meat production in China transitions from small, family-run concerns towards large-scale commercial operations, there is increasing demand for high-quality feed supplied by modern, efficient feed mills. Construction and commissioning of our new feed mill at Zhenlai was completed to plan in August and good progress is being made with construction of another mill at Rudong, both of which will supply these large integrated meat processors.

Frontier saw strong demand for cereal and rape seeds with fine weather during the planting seasons. The mild winter and warm spring also encouraged disease which drove demand for crop inputs, such as fungicides and fertilisers. Encouragingly, the warm dry summer resulted in an early wheat harvest of excellent yield and quality.

Grocery

Grocery operating profit will show good growth with George Weston Foods in Australia, ACH Foods in the US and Twinings Ovaltine all well ahead of last year. Revenues are expected to be broadly level with last year at constant currency but will be adversely affected by the strength of sterling on the translation of overseas results.

Twinings Ovaltine delivered double digit revenue growth in tea both in the UK, where green tea and infusions were the main drivers, and in the US where we remain the fastest growing tea brand. Ovaltine again performed well in its developing markets, particularly Brazil and south east Asia, and the new Ovaltine packing plant in Nigeria is now fully operational. Tea manufacturing conversion costs were lower than last year with the benefit of higher volumes, further improvements in operating efficiency at the factory in Poland and more high-speed packing equipment at Andover.

At Allied Bakeries, revenues and profit will be ahead of last year with higher branded sales and an increase in market share driven by the launch of Kingsmill Great White, a white bread with all the fibre of a wholemeal loaf. The major capital investment programme is nearing completion with the installation of a new bread plant in Stevenage, which is due to be commissioned in November, and completion of the modernisation of the Glasgow bakery. The proposed closure of the Orpington plant was announced in August with employee consultation currently under way.

Silver Spoon´s revenue and profit will be well below last year reflecting an especially competitive year for the UK packed sugar market which saw the loss of a number of granulated sugar contracts and considerably lower prices. Revenue and profit at Jordans and Ryvita will be ahead of last year with growth in our international business tempered by strong competition in the UK. At the end of May we exchanged contracts to acquire Dorset Cereals, a premium muesli brand, subject to clearance by the Competition Markets Authority.

AB World Foods made further progress achieving revenue growth in the UK for both Patak´s and Blue Dragon. Patak´s also performed well internationally, particularly in Canada and Australia. The core brands of Westmill Foods, Lucky Boat noodles and Elephant Atta flour, achieved further growth.

Sales at George Weston Foods in Australia were ahead of last year in local currency, driven by higher bread prices and meat volumes, and profitability was much improved. Don KRC achieved further improvements in factory efficiency and secured new business as a result of improved customer service levels and product quality.

Sales at ACH were ahead of last year, largely the result of demand for Mazola with positive consumer reaction to the plant sterols advertising campaign highlighting the lower cholesterol benefits of corn oil. Capullo, our premium oil brand in Mexico, increased its market share and profit further benefited from lower input costs.

Ingredients

Ingredients´ revenues will be ahead of last year at constant currency but with the strengthening of sterling and most of its businesses being located overseas, sales at actual rates are expected to be lower than last year. AB Mauri built upon its much improved first half profit performance with a strong recovery in the second half.

AB Mauri made progress in all of its regions and in both the yeast and bakery ingredients businesses. Good revenue growth was achieved in South America where cost inflation was either recovered through pricing or offset by improvements in efficiency. Higher volumes and a focus on business development drove growth in North America and the new yeast factory in Mexico is now supplying the markets of North and Central America. In China, the site of our Meishan yeast factory in Guangzhou City is to be redeveloped by the local government, the factory has been closed and provision for the small associated cost has been made. Customer requirements will be met from our modern facility in Harbin.

On 31 January 2014, AB Mauri completed the acquisition of a small bakery ingredients business operating across western Europe which offers craft and industrial customers a range of high-quality bakery ingredients. Its integration will broaden our product offering and our ability to respond to customer needs in a number of key markets.

At ABF Ingredients, growth was achieved in enzymes and the next phase of development at the manufacturing facility in Finland is under way. The new cereal extrusions factory at Evansville, Indiana in the US is now in production, providing increased capacity to meet the growing demand both for extruded rice products and AB Vista´s granulated feed products.

In view of the complementary product portfolios and common customer base, the Australian and New Zealand yeast and bakery ingredients businesses of AB Mauri have been integrated with the flour milling business of George Weston Foods in Australia. This will reduce overheads and allow the combined business to bring its technologies to market more effectively. Reflecting this change, the results of the Australian milling business, which were previously included within the Grocery segment, will be included within the Ingredients segment. When the results for the current year are presented the comparative results for 2013 will be restated resulting in 272 million GBP of sales and five million GBP of operating profit being transferred from Grocery to Ingredients.

Retail

Sales at Primark for the full year are expected to be 17 percent ahead of last year at constant currency and 16 percent ahead at actual exchange rates. This excellent result was again driven by an increase in retail selling space, like-for-like sales growth, which we expect to be 4.5 percent for the full year, and superior sales densities in the new stores. Good like-for-like sales growth was driven by highly successful autumn/winter and spring/summer ranges. Sales over the Christmas period were excellent and were boosted in the third quarter by warm weather, especially in the spring and early summer, which led to good trading across the group and outstanding results in Spain. Early sales of the new autumn/winter range are encouraging.

The operating profit margin of 13,1 percent in the first half was higher than last year reflecting the benefit of warehouse and distribution efficiencies and lower freight rates. These benefits continued in the second half and, with the strong trading over the summer resulting in a low level of markdowns, we expect the margin for the full year to be slightly higher.

During this financial year we will have opened 1,4 million square feet of selling space in 28 new stores, the most recent being Alexanderplatz in Berlin, Bath in the UK and Enschede in the Netherlands. We closed seven smaller stores, primarily where larger, better located, premises became available in the same city, resulting in a net increase in selling space of 1,2 million square feet. This will bring the total estate to 278 stores and 10,2 million square feet at the financial year end. We have a very strong pipeline of new stores in Europe extending over a number of years. We 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.

Responding to the increasing scale of our business in continental Europe, we doubled the size of our warehouse in Torija, Spain this summer and the Mönchengladbach warehouse in Germany, which services the stores in northern Europe, is being extended by 60 percent and will become operational early in 2015.

We announced in April that, after extensive research, we had decided to take the Primark concept to consumers in the north east of the US. A lease for some 70’000 square feet of selling space at Downtown Crossing in the heart of Boston, Massachusetts has been signed and we expect this store to open in late 2015. Negotiations are under way to secure further stores in the north east with the intention of trading from up to ten stores by late 2016. The US stores will be supported by leased warehousing in the region.

ABF: Pre Close Period Trading Update

London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issued the following update prior to entering the close period for its interim results to 01 March 2014 which are scheduled to be announced on 23 April 2014.

Adjusted operating profit for the first half is expected to be in line with last year. A much lower profit from Sugar will be offset by another excellent performance from Primark and encouraging results from Grocery and Ingredients. Net financing costs in the first half will benefit from the repayment, last July, of British Sugar´s 10,75 percent debenture, a strong cash flow, and lower net debt throughout the period. Together with a further reduction in the underlying tax rate at the half year, adjusted earnings for the first half will be firmly ahead of last year.

Sterling is continuing to strengthen against our major trading currencies and this will have a more significant negative effect on the translation of overseas results into sterling in the second half. Nevertheless, with a better than expected trading performance from the non-sugar businesses and lower financing costs, we continue to expect adjusted earnings per share for the financial year to be similar to 2013.

Cash flow and funding

Operating cash flow in the first half will be further improved driven by a good working capital performance, particularly at Primark where effective inventory management and strong trading have resulted in lower stock holding levels. Capital expenditure has been higher than last year with lower expenditure in the food businesses being more than offset by higher investment at Primark. Net debt at the half year is expected to be 0,9 billion GBP, some 0,4 billion GBP lower than at the same stage last year.

Sugar

Revenue and profit from Sugar in the first half will be substantially lower than last year. A reduction in EU sugar prices, ahead of regime reform in 2017, has been signalled for some time, although the speed with which the market is adjusting has been faster than anticipated. The world sugar price has also fallen to what we believe to be an un-sustainably low level, putting further pressure on industry revenues and margins. This will be reflected in AB Sugar´s results, particularly in China. First half sales volumes for Spain, Illovo and China will be lower than last year.

The UK campaign is now virtually complete. Good growing conditions through the mild winter resulted in the crop continuing to grow into the new year, with good beet quality and high sugar content. All factories have operated well and sugar production is now estimated at 1,3 million tonnes compared with 1,15 million tonnes last year. Production volumes at the Vivergo bioethanol plant in Hull have increased steadily in recent months. However, both over-supply in the EU and lower seasonal demand have led to a reduction in bioethanol prices.

In Spain, the northern campaign was delayed to maximise beet development from the reduced area under cultivation in the 2013 crop year and, although the campaign commenced well, adverse weather in recent weeks has resulted in challenging harvest conditions. Sugar production volumes are expected to be lower than last year. As in the UK, profit will also be adversely affected by the lower prices.

Illovo´s revenues have been weaker with lower domestic volumes in Zambia and Swaziland, competition from low cost imports reducing prices in Tanzania and South Africa, and lower EU pricing affecting Least-Developed Country exports. The Malawian kwacha has continued to decline against both the rand and sterling since last financial year end.

All five factories in south China made a good start to their campaign with sugar content and extraction both ahead of last year compensating for the smaller area under cultivation. Total sugar production is expected to be in line with last year. Production in the north has been seriously reduced by flooding in Heilongjiang and, with fewer factories in operation following last year´s rationalisation, volumes are expected to be much lower year-on-year. The campaigns at Qianqi and Zhangbei were both excellent with good factory throughput and higher sugar content in the beet. Significant overhead and efficiency improvements have been achieved in both regions resulting in a net improvement in performance.

Agriculture

Revenue and operating profit in the first half are expected to be similar to last year at both constant currency and actual rates. Lower UK feed volumes have been offset by growth in China, and a strong performance at AB Vista where Quantum Blue in South America and Econase in Asia were the main contributors. Successful commissioning of an animal feed enzyme granulation line at the extrusions plant in Evansville, Indiana, was completed in the period. Frontier traded at similar levels to last year with good sales of crop inputs and fertilisers.

Grocery

Revenue in the first half is expected to be ahead of last year at constant currency, but just below at actual rates. However, margins and profit will be much improved.

Twinings Ovaltine has again performed well with strong sales growth for tea in the US and the UK, and improved margins driven by higher volumes and factory efficiencies. Allied Bakeries made progress in the highly competitive UK bread market and volumes and margins will be ahead of last year. A new bread plant was commissioned at West Bromwich as we approach the end of a major capital investment programme in our UK bakeries. This programme delivers less waste, better control of our processes and consistently high quality bread. Sales at Silver Spoon will be lower than last year as a result of lost contracts and reduced UK sugar pricing, but the profit impact has been partially mitigated by overhead cost reduction.

Sales in local currency will be ahead at George Weston Foods in Australia, driven by higher bread prices and increased meat volumes. These businesses both made progress with cost reduction initiatives and Don KRC achieved further yield improvements and efficiencies at its Castlemaine factory. Revenue and profit at ACH is expected to be ahead of last year with higher corn oil volumes and margins.

Ingredients

Revenue in the first half is expected to be ahead of last year at constant currency but slightly lower at actual rates. Profit from continuing operations will be well ahead of last year´s break-even result, with the absence of restructuring costs and early signs of improvement in yeast and bakery ingredients.

Whilst AB Mauri´s markets remain competitive, particularly in Asia, a number of new initiatives are starting to yield positive results. Cost inflation in South America has either been recovered through pricing or offset by cost reduction. Revenue and profit in North America will be ahead of last year driven by higher volumes and continued investment in people, processes, and business development. The new yeast factory in Mexico is now operational enabling further expansion of distribution throughout North and Central America. In January we completed the acquisition of a small bakery ingredients business in Western Europe which complements our existing operations in the region. The integration of these two businesses will broaden our product range and strengthen our presence in a number of key markets.

At ABF Ingredients, the new extrusions factory at Evansville in the US has been successfully commissioned, products have been approved by key customers and the factory is fully operational. Closure of the yeast extracts plant in China was completed with a number of contracts successfully transferred to our Hamburg facility.

Retail

Sales at Primark in the first half have been very strong and are expected to be 13 percent ahead of the same period last year at constant currency and, with the benefit of a stronger Euro in this period, 14 percent ahead at actual rates. This has been driven by four percent like-for-like sales growth, an increase in retail selling space and superior sales densities in the larger new stores. Like-for-like sales in the first eight weeks of the financial year were held back by unseasonably warm weather and strong comparatives in the previous year, but the rest of the period saw excellent trading including the Christmas period. New store openings have added eight percent more selling space since the last half year.

Operating profit margin is now expected to be higher than in the same period last year, benefiting from warehouse and distribution efficiencies and lower freight rates. Christmas trading was strong in both years.

Retail selling space has increased by 0,6 million square feet since the financial year end and, at 01 March 2014, 269 stores will be trading from 9,6 million square feet. We have opened 16 new stores in the period including our first two stores in France: Marseille which began trading from 63’000 square feet on 16 December 2013, and Dijon which began trading from 44’000 square feet on 03 February, both of which have traded strongly to date. In Spain we opened six new stores and closed the smaller of our two stores in La Coruña and Zaragoza, bringing the total there to 39 stores. Three further stores were added in the UK, including Crawley where we relocated to a larger site, and we also closed our small store in Leytonstone. Two new stores were added in the Netherlands and one each in Germany, Austria and Portugal, all of which have traded exceptionally well.

We expect to add a further 0,5 million square feet of selling space in this financial year, bringing the net additions for the year to 1,1 million square feet which is substantially more than the 0,8 million achieved in 2013. The additional stores will include a further three in France, located in shopping centres in the suburbs of Paris; two additional German stores, our second in Berlin and one in Cologne; three new UK stores including a relocation in Cardiff; and we will also relocate our Plenilunio store, our first in Spain, to a location twice its size. As we opened no stores in the second half of last year, these openings will accelerate the eight percent selling space growth achieved in the first half. Capital expenditure for the full year is planned to be ahead of last year.

ABF: Pre Close Period Trading Update

London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issues the following update prior to entering the close period for its interim results to 02 March 2013 which are scheduled to be announced on 23 April 2013.

The interim results for the group will be ahead of our expectations at the start of the year. Adjusted operating profit will be higher than last year driven by an outstanding performance from Primark. Net financing costs in the first half will benefit from a strong cash flow and lower net debt during the period. Earnings per share for the first half will be substantially ahead of last year. Our expectation for the full year is unchanged and earnings growth for the full year will therefore be heavily weighted towards the first half.

Cash flow and funding

Operating cash flow for the half year is expected to be stronger than last year with higher profits, lower capital expenditure and a lower working capital outflow than is traditionally the case in the first half benefiting from the higher sales and good stock management at Primark. As previously indicated, capital expenditure in the food businesses for the full year is expected to be lower than last year although investment in new store development for Primark is likely to be similar. Net debt at the half year is expected to be more than 0,3 billion GBP lower than a year ago at some 1,25 billion GBP.

Sugar

Profit from Sugar in the first half will be lower than last year with an improvement at Illovo more than offset by a decline in China and a non-cash charge for the mothballing of our two smallest beet sugar factories in north China.

UK revenues were ahead of last year with higher sales volumes compared with last year´s abnormally low level at the beginning of the financial year and marginally higher sugar prices. Poor growing conditions during 2012 resulted in a lower beet yield and sugar content. As a consequence, the UK campaign started later and factory throughput has been lower to allow for a slower filtration process. Sugar production for the current year is now estimated to be 1,15 million tonnes compared with last year´s 1,32 million tonnes. Profit for the full year is expected to be lower as a consequence of the lower production, a higher beet cost and a weaker Euro in the first half. Production has now started at the Vivergo bioethanol plant in Hull.

In Spain, delayed planting in the south is expected to reduce the size of the southern crop and heavy rains will extend the campaign in the north into March. We nevertheless expect to achieve overall quota sugar production volume in the current financial year. Profit will be lower due to a higher beet cost and this year´s sales including a higher proportion of lower-margin, refined cane sugar.

Revenues at Illovo benefited from higher production volumes with increased cane yields and sugar content, particularly in South Africa. Campaigns were extended in Zambia and Swaziland where the recently expanded plants operated well. As a result we expect profit at the half year to be ahead of last year.

Sales volumes in China were unusually low last year and, as a result, this year´s revenues will be ahead despite deteriorating prices. A larger cane crop is expected to increase southern sugar production volumes ahead of last year. Sugar production in the north is expected to be in line with that achieved last year, with the new Zhangbei factory fully commissioned in time for the new season. As a result of much lower sugar prices our operations in China will be loss-making this year. It is anticipated that sugar prices will continue at this level for some time and we have sought to reduce our cost base. At the end of this campaign the small beet factories at Wangkui and Baolongshan have been mothballed and a non-cash charge of 22 million GBP has been taken in the period to write down the value of the associated assets.

Agriculture

Revenue in the first half will be ahead of last year driven by UK feed sales and AB Vista. With limited alternatives available to farmers, demand for sugar beet feed in the UK was high in the period but sales for the rest of the year will be constrained by the smaller UK beet crop. AB Vista´s feed enzyme business continued to make good progress, particularly in North America, supported by the success of the recently launched Quantum Blue. China revenues were below last year, with shortfalls resulting from lower demand for pig and poultry feed and Frontier traded at similar levels to last year. First half profit is expected to show further progress.

Grocery

Revenue in the first half is expected to be level with last year and profit will be substantially improved benefiting from the non-recurrence of restructuring costs in George Weston Foods in Australia and Allied Bakeries.

Twinings Ovaltine again performed well with some good market share gains. Production efficiencies at the new tea factory in Poland and cost reduction initiatives in the Ovaltine plant in Switzerland drove further improvement in operating profit. The UK bread market remained highly competitive. The worst UK harvest of recent years resulted in low volumes of wheat which was also of inferior quality but Allied Bakeries continued to produce high quality bread and recovered the higher cost through price increases. The new bread plant at Stockport has been operational since September and work is on track to commission the new plant at Walthamstow in early summer.

Trading at George Weston Foods in Australia met our expectations in the first half. Price increases have been secured for Tip Top bread but the market continued to be difficult with a high level of in-store bakery promotions. Progress was made in the Don KRC meat business with higher production and sales volumes and improved cost control and customer service. Revenue at ACH is expected to be level with last year.

Ingredients

Revenue in the first half is expected to be in line with last year although six percent higher at constant currency. Changes in exchange rates had no material effect on profit from trading which was in line with last year.

Following the difficulties experienced by the yeast business last year, the performance this period has seen some stabilisation although the market remains competitive. Yeast quality and productivity in China has improved and there was some reduction in molasses costs. The new yeast manufacturing facility in Mexico is currently being commissioned with first sales expected in the spring. With the opening of this new facility, a review of dry yeast capacity will lead to some rationalisation. Good progress was made in bakery ingredients´ sales and margins.

At ABF Ingredients, further growth was achieved in bakery, feed and speciality enzymes driven by new products launched last year. Sales of extruded grain products were well ahead of last year and strong dairy markets contributed to good results in whey proteins and lactose. The yeast extracts plant in China continued to make good operational progress.

Retail

Sales at Primark in the first half were exceptionally strong and are expected to be 23 percent ahead of the same period last year and 25 percent ahead at constant currency. This was driven by very strong like-for-like sales growth, a substantial increase in retail selling space and superior sales densities in the larger new stores. Like-for-like growth of seven percent benefited from comparison with weak sales during the unseasonably warm autumn of 2011 and good trading over the Christmas period.

Operating profit margin was much higher than in the same period last year, reflecting the benefit of lower cotton prices and better trading. No further margin benefit from lower cotton prices is expected in the second half.

This was an extremely active period for new store openings. Retail selling space has increased by 0,7 million square feet since the last financial year end and by 1,0 million square feet or 13 percent, since the 2012 half year. At 02 March 2013, we expect to be trading from 257 stores and 8,9 million square feet of selling space. We opened 15 new stores in the period including six in Spain and four in the UK including our second store on London´s Oxford Street, with 82’000 square feet of selling space. Two new stores were opened in Germany including one in Frankfurt´s Zeil, one of the country´s premier shopping locations. We opened our first two stores in Austria and a further store in the Netherlands. We also relocated our store in Sunderland to a larger site and completed the refurbishment and extension of our flagship store on Mary Street in Dublin.

This pace of store openings will not continue for the remainder of this financial year but we expect it to pick up again in the next financial year. We expect to add a further 100’000 square feet of space this year mainly comprising the completion of the extensions of our Newcastle and Manchester stores. Capital expenditure on new stores and refits for the full year is expected to be similar to last year.

ABF: Pre Close Period Trading Update

London / UK. (abf) Associated British Foods (ABF) issued the following update prior to entering the close period for its full year results, 52 weeks to 17 September 2011, which are scheduled to be announced on 08 November 2011.

The group´s adjusted operating profit for the second half will be in line with expectations. Net interest expense in the second half will, as previously advised, be higher than last year as a result of the higher level of average net borrowings. Last year´s finance charge for the group´s defined benefit pension schemes will be replaced this year with finance income as a consequence of an increase in the market value of pension scheme assets at the end of last year. The underlying tax rate for the year will be lower than last year, and some two percent lower than that used in the interim results, reflecting the further reduction in the UK corporation tax rate and the mix of profits in different tax jurisdictions. As previously indicated, adjusted earnings for the full year are expected to be similar to last year´s very strong result which benefited from 53 weeks trading.

Investment and capital expenditure

The higher level of expenditure on new stores for Primark has continued as planned. Substantial capital investment was also made elsewhere in the group. A number of major projects were completed or are near completion. The major factory expansion and construction of the new power co-generation plant in Swaziland are complete, commissioning of the new meat factory in Australia is almost finished and the Vivergo bioethanol plant in Hull is scheduled to begin operation next spring. Construction of new yeast plants in Mexico and Shandong province in China commenced in the second half, and expansion of dry yeast capacity at Xinjiang in China and at Casteggio in Italy continued.

Net Debt

This year´s higher level of capital expenditure and increased working capital, from substantially higher commodity costs, resulted in a higher level of net debt throughout the year. At the year end net debt is expected to be some 1,2 billion GBP.

Sugar

Sugar revenues made further progress in the second half driven by strong improvements in both China and Spain more than offsetting the absence of export sales from the UK and lower sales in South Africa. Profit for the full year will be well ahead of last year, and better than expected, with the benefit of these revenue increases and higher prices.

In the EU, the profits of our UK business will reflect the impact of the crop shortfall, as a result of the frost damage sustained during the severe weather last winter, after some recovery through price increases. Production was just below 1,0 million tonnes of sugar with the shortfall against contracted quantities being made up by a combination of de-stocking, additional in-house refining in Spain and securing supplementary supplies from third parties at higher cost. In Iberia, Azucarera delivered a much improved performance. Beet campaigns in both the north and south of Spain progressed well and output totalled 410’000 tonnes of beet sugar against a quota of 378’000 tonnes. In addition, the Guadalete refinery substantially increased its output, processing 248’000 tonnes of cane sugar against 145’000 tonnes in the previous year.

At Illovo, profit in the second half will be ahead of last year. Local and regional prices have risen in response to world market pressures and export prices to the EU have improved. Production in our financial year is expected to be 1,6 million tonnes; down from 1,8 million tonnes last year, driven by the drought affected South African crop. In Zambia, the new season is progressing well with the expanded factory performing at capacity.

Building on last year´s improvement, revenues and profits of our Chinese businesses were substantially ahead reflecting both higher prices and volumes. Beet sugar production doubled to 210’000 tonnes with the benefit of the ongoing and intensive work with growers to improve mechanisation, fertiliser and chemical usage, irrigation and harvesting practices. In the south, sugar production was held back at 415’000 tonnes by unfavourable weather conditions which reduced the sucrose levels in the cane.

Following delays caused by contractor performance issues, construction activity has recommenced at Vivergo´s bioethanol plant in Hull. The project is expected to complete in spring 2012.

Agriculture

Revenues were ahead in all sectors, driven by commodity price increases in UK feed and strong growth in feed enzymes, speciality feeds and nutrition. Together with an excellent performance from Frontier, AB Agri will deliver a record operating profit for the full year.

UK feed revenues and profit both grew, benefiting from ABF´s long-term relationships with major customers, despite a difficult year for the UK livestock industry. At Premier Nutrition, sales of pig starter feeds and premixes continued to grow strongly particularly in Eastern Europe and Russia. AB Vista achieved strong revenue growth and significant market share gains in feed enzymes.

At Frontier, volatile wheat prices throughout the year created exceptional grain trading opportunities with record volumes purchased and traded. High crop prices underpinned good farm profitability resulting in strong growth in fertilizer and seed sales and increased usage by farmers of crop protection products.

Grocery

Grocery revenues and profit for the full year are expected to be ahead of last year. Twinings Ovaltine and ABF´s UK grocery businesses performed well and profit also benefited from a lower charge for restructuring. However, the trading performance at George Weston Foods in Australia has been much weaker than previously expected.

Twinings Ovaltine maintained the momentum of the first half achieving strong sales growth in tea in both the US and the UK, and from Ovaltine in Thailand and developing markets. Improvements were made in tea product quality and packaging, facilitated by recent investment in new production lines. Significant investment to upgrade tea production in Andover, which supplies the UK market, is under way and the new tea plant in Poland is now fully operational supplying international markets.

In the UK, Allied Bakeries traded well with success for Kingsmill bakery snacks and rolls, and strong growth in the 50/50 range. The brand was supported by a strong advertising and marketing programme. Margins tightened with the higher level of promotional expenditure and only partial recovery of higher wheat costs being possible in an extremely competitive market. Silver Spoon had a successful year despite significant cost inflation. Granulated sugar for domestic use continued to decline but was offset by further growth in caster and icing sugars for home baking and strong growth from Allinson. Westmill´s performance was weak, affected by declines in the Chinese and Indian restaurant trade in the UK and strong price-based competition in branded rice. AB World Foods made good progress in a competitive trading environment and recovered higher commodity costs through price increases. Blue Dragon was relaunched in the year with new products and packaging and Patak´s continued to grow, particularly in its international trade. Jordans Ryvita had a very strong year with good sales growth across the range, both in the UK and internationally, and a substantial improvement in margin. Growth was achieved by a combination of successful advertising and the launch of new products.

At ACH in the US and Mexico price increases were implemented in the first half to recover higher commodity costs, particularly in vegetable oil and spices. Commodity costs continued to rise and, with consumers increasingly looking for value, further price increases became difficult to realise and margins were compressed in the second half. Stratas made good progress in streamlining its operations and reducing overheads with a resultant improvement in profit.

In Australia, difficult trading conditions for George Weston Foods led to lower revenues and substantially lower operating profit than last year. Baking margins were reduced by a much higher level of consumer promotion and a switch to lower margin, private-label bread and in-store bakery. The meat business made some progress in its underlying trading but this was offset by higher costs relating to the commissioning of the new factory at Castlemaine, Victoria. The old plant in Melbourne closed in August.

Ingredients

The yeast and bakery ingredients business of AB Mauri maintained the rate of revenue growth achieved in the first half but operating profit in the second half will be sharply lower.

The European yeast market has been extremely competitive and margins have suffered from an inability to recover fully raw material cost increases. Some weakness in the bakery industry in North America led to lower sales of wet yeast and higher-margin technical bakery ingredients, and full recovery of higher input costs was consequently challenging. In China, raw material costs rose as molasses, which were in short supply, were supplemented with higher cost corn syrup.

ABF´s performance in Latin America was encouraging, benefiting from strong economic growth and continued development across a broadened range of products. Significant raw material cost pressure was successfully offset by price increases. Bakery ingredients had another year of strong revenue growth, particularly in the UK, with an expanded product range. Considerable progress was made in building relationships with key global customers, and technical innovation continued to drive new product development enabling us to maintain technology leadership in key markets.

At ABF Ingredients, sales of feed, bakery and speciality enzymes made good progress driven by the successful introduction of new products. Commissioning costs of the new yeast extracts factory in Harbin, China were higher than forecast but the factory is now fully operational and plant efficiency is improving. Yeast extract margins continued to be held back by high molasses costs.

Retail

Sales at Primark will again be well ahead of last year and are expected to be up 13 percent compared to last year when adjusted for 52 weeks´ trading, driven by an increase in retail selling space and further like-for-like sales growth. ABF delivered a three percent like-for-like increase in the first half and expect to achieve three percent for the full year with some growth in the UK and Ireland, despite weaker consumer demand in the second half, and continental Europe strongly ahead. At the time of ABF´s interim results, the company expected operating margins to be lower in the second half reflecting higher input prices and the full effect of the absorption of the UK VAT increase. There has been a higher level of discounting than is normal towards the end of the summer season on the UK high street and operating margin is expected to be a little lower than forecast as a result. The recent softening of cotton prices is expected to be reflected in lower input costs in calendar year 2012.

Store expansion in this financial year has been very strong with 19 stores and 0,7 million square feet of selling space added. Seven new stores have been opened to date in the second half: La Coruna in Spain; two in Portugal at Forum Sintra south of Lisbon and Portimao on the Algarve; and four in the UK in Scunthorpe, Ilford, Kings Lynn and Stockport. Before the financial year end we will open a 46’000 square feet store in the new Westfield Stratford City shopping centre, next to the 2012 Olympic park, and a 52’000 square feet store in Dortmund in Germany. This will bring the total number of stores to 223 by the year end and, having also completed a number of store extensions, we will be trading from 7,2 million square feet of selling space.