AB Foods Regulatory News (ABF)

25 Feb 2008 07:00

Associated British Foods PLC25 February 2008 Associated British Foods plc Pre Close Period Trading Update Associated British Foods plc issues the following update prior to entering theclose period for its interim results to 1 March 2008, which are scheduled to beannounced on 22 April 2008. In our interim management statement issued on 17 January 2008 we reported thattrading in the first 16 weeks had been fully up to our expectations. This trendhas continued and our interim results will show good growth in the group'sadjusted operating profit over the same period last year. Strong growth inAgriculture, Grocery and Primark more than offset the expected, and previouslyreported, decline in Sugar. Recent investments, higher working capital and higher interest rates haveincreased the group's net financing costs. However, this impact will be largelyoffset by the lower underlying tax rate of 25% compared with 27% in the firsthalf last year. Adjusted earnings will show good progress. The income statement will include an exceptional gain of £16m following ourdecision to renounce permanently sugar quota in the UK and Poland. Thiscomprises the compensation receivable from the EU restructuring fund less boththe write-off of the unamortised cost of quota purchased in 2006 and costsrelating to the closure of the York and Ostrowite factories. During the half year we will have spent some £120m on acquisitions, primarily oncertain of the European assets of Gilde Bakery Ingredients for AB Mauri and onthe beet sugar factories in north east China. At the half year the group's netdebt will reflect these investments, the higher working capital in Sugarexpected at this time of year and higher working capital elsewhere resultingfrom the effect of substantially higher commodity prices on stocks. Sugar & Agriculture Sugar profit in the UK and Poland will be much lower than last year mainly as aresult of the further effects of the EU sugar regime changes. The restructuringlevy per tonne has been increased from €126 last year to €173 this year and thetemporary reduction of quota increased from 152,000 tonnes to 191,000 tonnes.In the UK, profit was also impacted by higher energy costs and a smaller crop of1.05 million tonnes which was affected by heavy mid-summer rains. Poland had anexceptionally good campaign with total production estimated at 227,000 tonnesand Glinojeck again set new operating records. The recent strengthening of theeuro has benefited both businesses. The European Commission has announced that a total of 2.6 million tonnes ofsugar quota has been permanently renounced across the EU in the first phase ofits enhanced restructuring scheme. This brings the total quota for sugar,inulin and isoglucose renounced to date to 4.8 million tonnes which is asubstantial move towards the target set by the Commission. The second, andfinal, phase renunciation is expected to be announced at the end of March. Aspart of the first phase British Sugar has received confirmation that itsapplication to renounce permanently 191,000 tonnes of UK and Polish sugar quotafrom October 2008 has been accepted. The financial consequences will be shownas an exceptional net gain of £16m. As anticipated there will be relief fromthe restructuring levy on the renounced quota in the 2007/8 marketing yearamounting to £25m. At Illovo, profits will be lower than the same period last year. Sugarproduction was impacted by very high rainfall making it impossible to harvestall available cane at the end of the season. Volumes in both South Africa andZambia are lower than previously forecast although the total sugar productionestimate of 1.8 million tonnes is still above the previous year. Operatingperformance was positive with good plant availability and sugar extraction inmost areas. The capacity expansion in Zambia is progressing well. The recent frosts in southern China will affect sugar production from our canesugar business although the consequently firmer prices will have some mitigatingeffect on profit. Construction of a new cane sugar mill in Jianchenjiang with acapacity of 120,000 tonnes will be completed at the end of this year and willenable further growth. Eleven beet sugar factories have now been acquired innorth east China and the campaign is progressing well with production of some240,000 tonnes of sugar expected. Agriculture performed extremely well with revenue up and profit sharply ahead oflast year. Strong trading in the markets for cereals, nitrogen basedfertilisers and other crop inputs led to an excellent result from Frontier.Further investment enabled KW Trident to benefit from high demand for sugar beetfeed and co-products from the cereal, distilling and brewing sectors. However,in China, recovery of the dramatic increase in the cost of raw materials andenergy has proved challenging. Grocery Grocery profits will be much higher than the same period last year, primarily asa result of a substantial improvement by Allied Bakeries but also due to strongperformances from Twinings Ovaltine and George Weston Foods in Australia. TheUK bakery business benefited from the continued improvement in operationalperformance, higher volumes and achievement of price increases that recoveredthe higher wheat costs. In Australia, the results also reflect improvements inbakery performance and successful recovery of higher wheat costs. TwiningsOvaltine again delivered strong sales growth, particularly from tea in the UKand US and from Ovaltine in Asia and developing export markets. As expected profit at ACH has been impacted by sharp increases, to unprecedentedlevels, in the cost of corn, soy bean and canola oils. Price increases have nowbeen achieved with further initiatives planned. The combination of Patak's andBlue Dragon is on plan, trading is encouraging and the new Blue Dragon factoryin Poland is being commissioned. Grocery profit will include a charge for theclosure of the existing factories in Wales. Westmill profit will be ahead oflast year. In February we agreed to acquire, subject to clearance by the regulatoryauthorities, KR Castlemaine, a manufacturer and marketer of meat products inAustralia. The addition of the KR brand and the modern, low-cost factory atCastlemaine will strengthen our existing meat business. Ingredients Ingredients will achieve good sales growth but some higher input costs,specifically in our protein business, will adversely impact margin. Growth inenzymes has been achieved by a combination of increased sales resource with awider geographical reach and the introduction of new products. In yeast, theBrazilian business benefited from lower operating and molasses costs and theexpansion of the Argentinean plant has created one of the lowest cost plants inthe world. Increased demand has led to further investment in additional yeastand yeast extract capacity in north east China and enzyme capacity in Finland.We sold our small UK-based emulsifier business at the beginning of February withcompletion subject to competition clearance. Retail Sales and profit at Primark were substantially ahead of last year reflecting theincrease in retail selling space and a 4% increase in like-for-like sales.Christmas trading was ahead of our expectations. At the half year we will beoperating from 173 stores and 5 million sq ft of selling space. Since last yearend new stores were opened in Jerez and Madrid, bringing the number of stores inSpain to four, in Cork and larger stores in Tralee and Brighton which replacedsmaller stores there. We expect to open a further eight stores in the secondhalf including four stores in Spain. For further enquiries please contact: Associated British Foods John Bason, Finance Director Tel: 020 7399 6500 Citigate Dewe Rogerson Jonathan Clare, Chris Barrie, Hannah Seward Tel: 020 7638 9571 This information is provided by RNS The company news service from the London Stock Exchange