TIDMABF
RNS Number : 1445Y
Associated British Foods PLC
07 September 2020
7 September 2020
Associated British Foods plc
Pre Close Period Trading Update
Associated British Foods plc issues the following update prior
to entering the close period for its full year results for the 52
weeks to 12 September 2020, which are scheduled to be announced on
3 November 2020.
Trading performance
Trading in the fourth quarter in both our food businesses and
Primark exceeded our expectations. Grocery benefited from a
continuation of increased retail sales volumes in our key markets
of the US, Europe and Australia. Increased demand for yeast and
bakery ingredients, particularly across the Americas and China,
delivered higher sales for Ingredients. As expected Sugar will
deliver a much improved profit year on year. All Primark stores
reopened during May, June and July and trading during the fourth
quarter has been strong. In the latest four-week UK market data for
sales in all channels Primark achieved our highest ever value and
volume shares for this time of year.
For the full year we expect a very strong increase in the
aggregate adjusted operating profit for our Sugar, Grocery,
Agriculture and Ingredients businesses over last year. This will be
driven by increases in each division with particularly strong
increases in Sugar and Grocery. Adjusted operating profit for
Primark on an IFRS16 basis, excluding exceptional charges, is now
expected to be at least at the top end of the GBP300-350m range
previously advised compared to GBP913m reported for the last
financial year.
Net interest expense and lease interest will be in line with
last year, on an IFRS16 pro forma basis, and other financial income
will be lower than in 2019 as previously explained. The full year
effective tax rate for the group is expected to be in the region of
30% due to the much lower taxable profit in the UK and Ireland this
year.
We expect adjusted earnings per share to be significantly below
last year as a result of the decline in Primark's profit due to the
store closures and the ongoing impacts on customer demand caused by
COVID-19.
Net cash
Our expectation is that the year-end net cash balance, before
lease liabilities, will now be some GBP1.3bn. The improvement since
our last trading update is primarily driven by a reduction in
working capital in Primark and in particular its inventory levels.
Lower food inventory levels, higher group operating profit and
reduced capital spend also contributed.
We fully repaid the group's Revolving Credit Facility of
GBP1.1bn in August. An extension of the maturity date of this
facility to July 2023 has been agreed with all our relationship
banks.
Grocery
Grocery revenues will be ahead of last year with growth in
Twinings, UK Grocery, ACH and George Weston Foods in Australia.
Second half revenue growth was stronger driven by increased retail
demand as a result of COVID-19. These revenues will be held back by
lower Ovaltine sales and the expected decline in Allied Bakeries.
Adjusted operating profit will be significantly ahead with
volume-driven margin gains in ACH, Twinings, George Weston Foods
and UK Grocery more than offsetting a one-time non-cash write-down
of assets in Allied Bakeries of GBP15m.
Twinings made good progress this year with volume growth in
black tea and infusions in each of its major markets. Sales of
Ovaltine were however held back by the impact of COVID-19 on
impulse sales, particularly in Thailand and Vietnam. Overall
margins improved and also benefited from a full year of production
efficiencies following the closure of the Chinese tea factory last
year.
Allied Bakeries revenues declined this year following the
termination of our largest private label bread contract earlier in
the financial year. However cost reductions and a COVID-19 related
uplift in sales resulted in an improved underlying operating
result. Following the previously announced loss of the Co-op
contract the carrying values of some of our distribution assets
have been reviewed resulting in a one-time charge of GBP15m. We
have now received GBP30m for the insurance claim relating to the
fire in February at our Speedibake Wakefield factory which will
more than offset the exceptional charge of GBP25m recognised at the
half year.
Although Westmill and AB Sports Nutrition have seen sales and
profit declines due to the reduction in foodservice activity and
sports events respectively, Silver Spoon, Jordans, Dorset Cereals,
Ryvita and AB World Foods all benefited from significant increases
in consumer demand in the second half.
Acetum delivered growth with increased demand for balsamic
vinegar in North America. ACH, including Anthony's Goods, the
supplier of high quality natural and organic food products, has
performed extremely strongly this year driven by increased demand
for homebaking products. George Weston Foods has delivered
excellent sales growth and margin improvement, with strong sales of
bread and breakfast goods more than offsetting weaker foodservice
sales of meat products. Yumi's has seen continued strong sales
growth and the launch of a new "veggie burger" has been well
received.
Sugar
AB Sugar revenue will be ahead of last year. Adjusted operating
profit will be well ahead, driven by the benefit of the strong
recovery in EU sugar prices which will more than offset much lower
profits at Illovo.
EU sugar prices increased this year with a reduction in stocks
following lower EU sugar production in the last two campaigns.
Looking ahead, estimates for EU sugar production in the upcoming
campaign are lower than this year due to reduced yields following
difficult weather conditions and the prevalence of virus yellows
disease in the beet. Following a sharp price decline in April there
has been some recovery in the world sugar price reflecting higher
commodity crude oil prices. Our UK and Spanish businesses have
continued to contract sales for next year at prices in line with
our expectations.
In the UK, sugar production of 1.19 million tonnes was ahead of
last year with a strong operating performance by the factories
overcoming a prolonged campaign as a result of adverse weather.
With the higher sales price and some improvement in sales volume
the profitability of British Sugar improved significantly. With
lower yields sugar production next year is expected to be below
this year.
The operating performance in Spain improved significantly and
the business is now expected to deliver a breakeven operating
result. This was delivered by higher sales prices, lower beet costs
and a significant reduction in operating costs.
Sugar production at Illovo is expected to be in line with last
year at 1.63 million tonnes, but lower than expected with
production at the end of the 19/20 season curtailed by the early
onset of the rainy season. Illovo is expected to deliver a much
reduced profit. Domestic South African market volumes reduced this
year by some 10% following the recent introduction of a sugar tax
and we expect volumes to continue at these lower levels. The
operating profit in Malawi was impacted by lower sales volumes this
year but plans are in place to deliver an improvement next year.
Export sales across southern Africa have been limited by COVID-19
restrictions on cross-border traffic between countries and on port
capacity. The full year profit will include a GBP10m charge for
restructuring which is expected to deliver benefits in the next
financial year.
In China a return to normal yields after a very poor crop last
year and higher sugar sales prices resulted in a much improved
operating result. Further progress is expected next year with a
larger crop area and the benefit of some 80% of grower contract
payments now linked to beet sugar content.
Agriculture
AB Agri will deliver an increase in adjusted operating profit.
Sales and profit at AB Vista, our feed enzymes business, will be
strongly ahead of last year, with good sales growth in the Americas
and the first full year of sales from Signis, our innovative animal
digestion aid. Our UK feed businesses have seen lower sales due to
high forage availability and reduced foodservice demand for milk
and poultry meat as a result of COVID-19. Our European feed
businesses in Spain and Denmark have seen good sales and profit
growth, while profits in our Chinese feed business benefited from
lower raw material prices and tight cost control. Frontier's result
is below last year with sales of crop inputs impacted by
unfavourable weather in the autumn and spring.
Ingredients
Ingredients revenues and operating profit are now expected to be
ahead of last year.
AB Mauri responded quickly to higher demand for yeast and bakery
ingredients with increased production capacity. Retail demand for
yeast was particularly strong and sales of non-dairy toppings in
Brazil were well ahead. Sales growth was particularly strong in the
Americas and China.
Our proposed yeast and bakery ingredients joint venture in China
with Wilmar International received regulatory approval in April and
the transaction is expected to complete early in the next financial
year. Construction of the major new yeast plant in northern China
is well underway.
ABF Ingredients revenues are expected to be in line with last
year. Our enzymes business delivered very strong sales growth and
our yeast extracts and seasoning powders business made good
progress in the food and health markets. These gains were however
offset by lower volumes as a result of increased competition for
Abitec and also reduced demand for protein bars at PGPI during
COVID-19 lockdowns.
Retail
All Primark stores reopened in May, June and July. Since
reopening we have traded strongly, attracting customers with our
value-for-money offering and a welcoming and safe store
environment. Cumulative sales since reopening to the year-end are
expected to be GBP2bn and our adjusted operating profit on an
IFRS16 basis for the year, before exceptional items, is now
expected to be at least at the top end of the previously advised
GBP300-350m range.
Total customer spend on clothing, footwear and accessories in
our markets has been impacted by COVID-19. It has been recovering
from a low point in April and the rate accelerated with the
reopening of stores.
Since reopening we have seen increasing numbers of transactions
driven by footfall. The average basket size was initially
significantly higher than last year, reflecting some pent-up
demand, and while this outperformance has reduced in recent weeks
it remains higher than a year ago. We have continued our policy of
offering the best prices, and markdowns for the period since
reopening have been low.
Compared to pre-COVID-19, sales performance since reopening has
in aggregate been reassuring and encouraging. By store the
performance has varied, reflecting the current circumstances of our
customers including increased home working, less commuting and much
less tourism. Sales at our stores in retail parks are higher than a
year ago. Shopping centre and regional high street stores are
broadly in line with last year and large destination city centre
stores, which are heavily reliant on tourism and commuters, have
seen a significant decline in footfall. Our 16 largest destination
city centre stores contributed 13% of total sales pre-COVID-19 and
8% of sales after reopening.
We are prioritising the health and wellbeing of everyone in
store and have received positive feedback from our customers about
the safety measures in place and the welcoming store environment.
We are working constantly to optimise the implementation of
in-store safety measures and have recently installed additional
dividers at the tills in our 250 busiest stores which has enabled
more tills to be opened and has reduced queues.
In the UK sales since reopening are expected to be 12% lower on
a like-for-like basis and if the four large UK destination city
centre stores are excluded the decline is 5%. After a period of
store closure we are encouraged by the strength of our sales. In
the latest four-week UK market data for sales in all channels
Primark achieved our highest ever value and volume shares for this
time of year.
Sales in Europe are expected to be 17% lower on a like-for-like
basis, reflecting increased public health restrictions,
particularly in Spain and Portugal. Excluding our 11 destination
city centre stores like-for-like sales are down 13%.
Sales in the US are expected to be 9% lower on a like-for-like
basis and are 2% ahead excluding our Boston destination city centre
store.
At the half year we recognised an exceptional charge of GBP284m
against inventory on hand and yet to be delivered. The earlier than
expected reopening of the stores and stronger than expected trading
over the summer has allowed us to sell the stock in store and a
significant proportion of the stock on hand. As a result the book
value of spring/summer inventory that will be carried into next
year is now expected to be only some GBP150m and total year-end
inventory levels will be much lower. The cash generated by the sale
of this stock on hand is the major contributor to our better net
cash balance at the year-end. We will review both our stocks on
hand and our commitments at the year-end and expect this to result
in a significant reduction in the exceptional charge.
Current orders being placed are benefiting from recent weakness
in the US dollar.
In July Primark announced the rollout of its UK recycling
programme, inviting customers to donate their pre-loved clothes,
textiles, footwear and bags from any brand. Collection boxes are
now available in all Primark's UK stores and donated items will be
reused, recycled or repurposed, with nothing going to landfill.
Profit from the scheme will go to UNICEF, Primark's global charity
partner, in support of its education programmes for vulnerable
children around the world.
The store opening programme planned for the second half of this
year has been delayed by restrictions on access to complete the
fit-out of our stores. Nevertheless, since our last trading
statement a further three stores have been opened: Plaisir and
Belle Épine in Paris, France and Warsaw, Poland. Initial trading in
these stores has been very strong, particularly in Warsaw.
Following the opening of our new store in Strasbourg, France
tomorrow this will bring the total estate to 384 stores trading
from 16.2m sq ft of space compared to 15.6m sq ft a year ago.
The stores added this year are as follows:
Country Store
Belgium Mons
France Lens Noyelles
Paris Belle Épine
Paris Plaisir
Strasbourg
Germany Kiel
Berlin Gropius Passagen
Italy Milan Fiordaliso
Poland Warsaw Galeria Mlocincy
Spain Seville Lagoh
Barcelona Plaza de
Cataluña
UK Manchester Trafford
Centre
We closed our small store in Rathfarnham in Ireland and
relocated three other stores. Following the benefits seen from the
successful downsizing of three stores in the US and three stores in
Germany we have plans for a further five stores and we expect to
recognise a one-time non-cash asset write-down as an exceptional
charge in the year-end results.
In the next financial year, our current plans are to add a net
0.7m sq ft of additional selling space. We expect to open 14 new
stores with four in Spain; three in the US; two in Italy; and one
each in the UK, France, Netherlands and Poland as well as our first
store in Czechia, Prague.
Business contingency plans
There is uncertainty about the possibility of further public
health measures in response to COVID-19 that could restrict our
ability to trade. Over the past six months we have developed a
flexible set of responses and are ready to deploy these as
required.
Our businesses have completed all practical preparations should
the UK exit the Brexit transition period with or without a trade
deal. Primark operates largely discrete supply chains for its
stores in each of the UK, US and Europe and the group's food
production is largely aligned with the end market. As a result
there is relatively little group cross-border trading between the
UK and the EU. Contingency plans are in place should some of our
businesses experience disruption.
For further enquiries, please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399
6500
Catherine Hicks, Corporate Tel: 020 7399
Affairs Director 6500
Citigate Dewe Rogerson
Chris Barrie Tel: 07968 727
289
Jos Bieneman Tel: 07834 336
650
Notes
Like-for-like sales
The like-for-like sales measure represents the change in sales
at constant currency in our retail stores which have been open for
at least one year. It excludes the first year of sales of new
stores, the sales of stores closed in the period and one year of
sales of stores where there has been a change to the selling space.
It is measured against the comparable trading days last year.
Exceptional items
Exceptional items are defined as items of income and expenditure
which are material and unusual in nature and are considered to be
of such significance that they require separate disclosure on the
face of an income statement.
Adjusted profit and earnings measures
Adjusted operating profit is stated before amortisation of
non-operating intangibles, transaction costs, amortisation of fair
value adjustments made to acquired inventory, profits less losses
on disposal of non-current assets and exceptional items. Adjusted
profit before tax is stated before amortisation of non-operating
intangibles, transaction costs, amortisation of fair value
adjustments made to acquired inventory, profits less losses on
disposal of non-current assets, exceptional items and profits less
losses on sale and closure of businesses.
Adjusted earnings and adjusted earnings per share are stated
before amortisation of non-operating intangibles, transaction
costs, amortisation of fair value adjustments made to acquired
inventory, profits less losses on disposal of non-current assets,
exceptional items and profits less losses on sale and closure of
businesses together with the related tax effect.
Items as defined above which arise in the group's joint ventures
and associates are also treated as adjusting items for the purposes
of adjusted operating profit and adjusted profit before tax.
Constant currency
Constant currency is derived by translating the prior year
results at current year average exchange rates, except for
countries where consumer price inflation (CPI) has escalated to
extreme levels, in which case actual exchange rates are used. There
are currently two countries where the group has operations which
are experiencing extreme levels of CPI - Argentina and
Venezuela.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
TSTLIMMTMTIMTAM
(END) Dow Jones Newswires
September 07, 2020 02:00 ET (06:00 GMT)
Associated British Foods (LSE:ABF)
Historical Stock Chart
From Mar 2024 to Apr 2024
Associated British Foods (LSE:ABF)
Historical Stock Chart
From Apr 2023 to Apr 2024