London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issued an interim management statement for the 16 weeks to 05 January 2013. Highlights: Group revenue up ten percent – Outstanding sales performance from Primark Trading for the remaining businesses in line with expectations.
Group revenue for the first 16 weeks was ten percent ahead of last year. Revenue growth by business segment was: Sugar twelve percent – Agriculture three percent – Grocery level – Ingredients level – Retail 25 percent – Total group ten percent.
Sterling has strengthened against all of our principal foreign currencies, compared with the first quarter last year, with the exception of the Australian Dollar which is unchanged. The increase in revenue for the group on a constant currency basis was 13 percent.
Revenues were twelve percent ahead of last year. UK revenues in the period were ahead of last year with higher sales volumes compared with last year´s abnormally low level 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 will have lower factory throughputs to allow for a slower filtration process. Sugar production for the current year is estimated at 1,13 million tonnes compared with last year´s 1,32 million tonnes. Profit for the current year is expected to be lower than last year as a consequence of the lower production, higher beet cost and a weaker Euro. The Vivergo bioethanol plant is now operational.
In Spain, heavy rains delayed planting in the south which is expected to reduce the size of the crop. We nevertheless expect to achieve overall quota sugar production volume in the current financial year but profit will be lower both because of a higher beet cost and this year´s sales including a higher proportion of lower-margin, refined cane sugar.
Illovo´s revenues benefited from higher production volumes in South Africa, with increased cane yields and sugar content and with extended campaigns in Zambia and Swaziland. As a result we expect profit for the full year to be ahead of last year.
Sales volumes in China were unusually low last year and, as a result, this year´s revenues were ahead despite lower prices. Production campaigns are under way and a larger cane crop is expected to increase sugar production in the south 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. For the full year, sugar profitability is expected to be well below last year as a result of much lower sugar prices.
Revenue was three percent ahead of last year driven by UK feed sales and AB Vista. Although sugar beet feed volumes in the period were ahead of last year, they are likely to be constrained for the rest of the year by the smaller UK beet crop. AB Vista´s feed enzyme business continued to make good progress particularly 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. Frontier traded at similar levels to last year.
Revenue was level with last year. Twinings Ovaltine again performed well with good growth for tea in the UK and the US and for Ovaltine in its developing markets. Sales by the UK grocery businesses were in line with last year and Allied Bakeries recovered higher wheat costs through bread price increases. Sales declined at George Weston Foods in Australia but the business secured price increases for its Tip Top bread range at the end of the period. Progress was made in the Don KRC meat business with higher volumes and improved cost control. Revenue at ACH was level with last year. Grocery profit for the full year is expected to be ahead of last year benefiting from the non-recurrence of restructuring costs in George Weston Foods and Allied Bakeries.
Revenue was level with last year. Yeast and bakery ingredients revenues were close to last year across all regions. Good progress was made in bakery ingredients´ sales and margins. In China, yeast quality and productivity was improved and there was some reduction in molasses costs although the market remains competitive. The new yeast manufacturing facility in Mexico is currently being commissioned with first sales expected in the spring. At ABF Ingredients, sales of extruded grain products were well ahead of last year and protein and lactose prices remained strong.
Sales at Primark were above expectations, 25 percent ahead of the same period last year and 27 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 benefited from comparison with weak sales during the unseasonably warm autumn of 2011 and good trading over the Christmas period.
This was an extremely active period for new store openings. Retail selling space increased by 0,7 million sq ft since the financial year end and by 1,1 million sq ft or 14 percent, since this time last year. At five January 2013, 256 stores were trading from 8,9 million sq ft of selling space. We opened 14 new stores in the period: six in Spain, four in the UK, one each in Germany and the Netherlands and our first two stores in Austria. We also completed the refurbishment and extension of our flagship store on Mary Street in Dublin and relocated our store in Sunderland to a larger site. The opening of our second store on London´s Oxford Street, with 82’000 sq ft of selling space, was a notable event in the period. 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 200’000 sq ft of space this year. This will include the completion of extensions to our Newcastle and Manchester stores, featuring the new store design and a new store in Frankfurt´s Zeil, one of Germany´s premier shopping areas. Capital expenditure on new stores and refits for the full year is expected to be similar to last year.
Operating profit margin was higher than in the same period last year, reflecting not only the benefit, as expected, of lower cotton prices since last half year, but also better trading.
The operating cash flow in the period was much better than last year driven by higher profits, a lower working capital outflow and a further reduction in the overall level of capital expenditure, although investment in new stores for Primark continued at a level similar to last year. Net debt at five January 2013 was 0,9 billion GBP, unusually lower than last financial year end reflecting the outstanding trading from Primark and the later start to the European sugar campaigns.
Year to date trading for the group was ahead of our expectations driven by the outstanding performance from Primark, with the rest of the group performing in line. As previously indicated, the full year result for AB Sugar is expected to be lower than last year but we anticipate that this will be more than offset by growth at Primark and some recovery in Grocery. In light of the group´s current performance we now expect to make further progress in adjusted operating profit for the full year, with the improvement heavily weighted towards the first half.