TIDMABF
RNS Number : 2651Q
Associated British Foods PLC
25 February 2021
25 February 2021
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 interim results for the 24
weeks to 27 February 2021, which are scheduled to be announced on
20 April 2021. It also includes the likely timetable for the
reopening of those Primark stores which are currently closed and
our trading experience in those stores recently reopened.
Trading outlook
For the first half of 2021 we expect revenue and profit in each
of our Grocery, Sugar, Agriculture and Ingredients businesses to be
ahead of both expectation and the first half of last year.
Our Retail performance in the first half was materially impacted
by the restrictions on movement of people and of trading activity
put in place by the UK and European governments. Our estimate for
the loss of sales in the periods of store closures during this
period is GBP1.1bn. When stores were open demand was strong and
trading was encouraging, given the circumstances. We expect Primark
sales in the first half to be some GBP2.2bn and the adjusted
operating profit to be marginally above break-even.
As a consequence of the restrictions placed on Primark we expect
sales, adjusted operating profit and adjusted earnings per share
for the group to be lower than last year. The lower profitability
of Primark will result in an increase in the group's effective tax
rate this year to some 30%.
The weighted average exchange rate for sterling against our
major trading currencies was in line with that for the comparable
period last financial year and there will be a translation gain of
some GBP3m in the period.
We are looking forward to the reopening of the Primark estate.
As of today, we have likely reopening dates for 233 stores in
addition to the 77 stores already open, so that 83% of our retail
selling space should be trading by 26 April. Our stores will be
offering exciting seasonal ranges for spring/summer and we have
been placing orders for merchandise with a long lead time for the
autumn/winter season. We expect the period after reopening to be
highly cash generative.
Cashflow and funding
The group's net cash before lease liabilities is now expected to
be some GBP650m at the half year. The improvement since our last
trading update is primarily driven by lower working capital
requirements in all our businesses.
The cash outflow for the group in the first half is expected to
be some GBP900m. We normally have a seasonal outflow in this period
for our Sugar businesses in the northern hemisphere and payment was
made for those orders for Primark's autumn/winter ranges which were
delayed from the last financial year. The major part of this
outflow, which we estimate to be some GBP650m, is a result of the
Primark store closures. This relates to both the loss of revenue,
whilst most stores were closed during November and since the end of
December, and the consequent increase in stocks.
The group's net cash before lease liabilities of some GBP650m at
this half year compares to GBP801m at the same time last year. The
cash outflow as a result of the periods for which Primark's stores
were closed over the last year has been substantially offset by the
higher cash generation by our food businesses and by the
non-payment of both interim and final dividends for our 2020
financial year.
Retail
Primark's sales for the half year are estimated to be some
GBP2.2bn, compared to GBP3.7bn in the first half of the last
financial year. This period has been characterised by the impact on
our trading of the restrictions on the movement of people put in
place by UK and European governments to limit the spread of
COVID-19. The extent and timing of restrictions have varied by
market, with different approaches taken by each government and
during this first half, unlike the first lockdown, all of our
stores have not been closed at the same time. However, the majority
of our stores were closed during November and from the end of
December and we estimate the loss of sales while stores were closed
to be some GBP1.1bn.
When stores were open, trading continued to be strong, with
sales at -15% on a like-for-like basis compared to last year. This
performance should be seen in the context of lower category spend
and lower footfall reflecting government advice to limit journeys
from home. Furthermore our hours of trading have been restricted,
for example closure at the weekends in Italy and early closing in
Spain, even where stores are open. Performance has varied by store
reflecting the prevailing circumstances of our customers including
home working, less commuting and very little tourism. Like-for-like
sales at our stores in retail parks were higher than a year ago,
shopping centre and regional high street stores were lower than
last year, and large destination city centre stores, which are
heavily reliant on tourism and commuters, continue to see a
significant decline in footfall. Excluding our 16 major city centre
stores, trading was at -11% on a like-for-like basis.
Our business in the US continued to perform well, with
particularly strong trading at recently opened stores, American
Dream, New Jersey and Sawgrass Mills, Florida.
Sales in those stores open during the festive season reflected
the excitement and broad appeal of the Primark offering. All
Christmas and gifting lines were sold out and the performance for
"stay at home" product categories was strong, especially in
nightwear and loungewear. The level of markdown was substantially
lower than the same period last year. We now expect to warehouse
some GBP260m of autumn/winter stock for later this year. All orders
placed with our suppliers will be honoured.
We have implemented operational plans to manage the consequences
of the closures. As a result, overhead costs have been partially
mitigated with some 25% of operating costs of the closed stores
being saved during the period.
We expect the adjusted operating profit for Primark in the first
half to be marginally above break-even, but which would compare to
an adjusted operating profit of GBP441m for the same period in the
last financial year.
Retail selling space has increased by 0.3m sq ft since the last
financial year end and at 27 February 2021, we will have 390 stores
with 16.5m sq ft of retail selling space which compared to 15.8m sq
ft a year ago. Six new stores were opened in the period, with the
latest store opening in Coquelles near Calais in France adding to
Barcelona Sant Cugat and Espacio León in Spain, Sawgrass Mills
Florida and American Dream New Jersey in the US and Roma Maximo in
Italy. In addition, we relocated to larger premises in Southend UK.
The very positive customer reaction to these store openings, both
in the US and in Europe, was striking.
We expect to add a net 0.7m sq ft of additional selling space in
this financial year. We plan to open 15 new stores for the year:
five in Spain, three in the US, two in Italy, one in each of the
UK, France and the Netherlands, our next store in Poland, Poznan,
and our first store in Czechia/Czech Republic, Prague.
Looking further ahead, we continue to add to the pipeline of new
stores. Further to the lease signed for a store in Queens, New
York, we have now signed a lease for a store in Green Acres Mall in
Long Island, New York. We are excited about the growth opportunity
for the brand in the US. In addition, we have also recently signed
leases for Girona, Cadiz and San Sebastien in Spain, Catania in
Italy, Rouen Saint Server in France and Katowice in Poland.
In the markets where Primark operates governments have been
announcing plans to ease, or have started to ease, restrictions on
clothing retailing. Over the last few weeks our stores in Austria,
Poland and Slovenia have already re-opened and trading has been
very strong. Sales in these stores were ahead of last year on a
like-for-like basis. Customer demand was particularly strong for
children's wear, nightwear and loungewear. Safety continues to be
our highest priority with measures, developed across our UK and
European estate, designed to safeguard the health and wellbeing of
everyone in store and instill confidence in the store
environment.
As at today, Primark is trading in 77 stores which represent 22%
of our retail selling space.
Current plans anticipate the following reopenings subject to
relevant local criteria: six Spanish stores on 1 March and two on
11 March, 32 stores in Germany on 8 March and 20 stores in the
Netherlands on 15 March. Following the announcement by the UK
Government on the 22 February the reopening of the 153 stores in
England is likely on 12 April. The table below sets out those
Primark stores that have already reopened, those with a confirmed
reopening date and the remaining stores where we still await
confirmation.
Our estimate for the sales which will be lost during the second
half of our financial year in respect of the remaining periods of
store closures is some GBP480m, with a loss of contribution, after
cost mitigation, of GBP170m.
We are looking forward to the reopening of all of our estate and
we will ensure that our stores will offer exciting seasonal range
for spring/summer. Importantly we have been placing orders for
merchandise with a long lead time for the autumn/winter season.
We expect the period after reopening to be very cash generative.
We expect to sell the GBP150m of spring/summer inventory held over
from last year and our cash outlay in the second half for the
coming autumn/winter season will mostly benefit from the GBP260m
autumn/winter stock held over from the first half.
Status Country Reopening Stores Space m
Date sq ft
----------------------- ----------- ------- ----- --------
Open
Austria 5 0.2
Belgium 8 0.4
Italy 6 0.3
France 3 0.2
Spain 42 1.8
US 11 0.6
Slovenia 1 0.0
Poland 1 0.0
At 25 February Subtotal 77 20% 3.5 22%
---------------- ------------------------------------ ------- ----- -------- -----
1 & 11
Spain March 8 0.3
Germany 8 March 32 1.8
Netherlands 15 March 20 1.0
England 12 April 153 6.3
Scotland 26 April 20 0.7
Known dates Subtotal (cumulative) 310 79% 13.7 83%
---------------- ------------------------------------ ------- ----- -------- -----
Balance
Portugal 10 0.4
Wales, NI 17 0.5
Republic of Ireland 36 1.1
France 17 0.9
------------------------------------ --------------- ------- ----- -------- -----
Total 390 100% 16.5 100%
------------------------------------ --------------- ------- ----- -------- -----
Sugar
AB Sugar revenue is expected to be marginally ahead of last year
in the first half primarily due to higher average sugar prices for
British Sugar and higher prices in Illovo. Operating profits are
expected to be significantly ahead for the half year driven by a
strong recovery in Illovo and further improvement in British Sugar.
Along with the benefit of these higher prices, Illovo has also
benefited from increased domestic and regional sales and all
businesses continued to deliver savings from the performance
improvement programme.
We expect that UK sugar production for the 2020/21 campaign will
be 0.9m tonnes, well down on last year's 1.19m tonnes, due to wet
weather conditions at the time of planting and the severe impact of
virus yellows, which is transmitted by aphids, on the sugar beet.
On 8 January the UK Government granted a conditional permit for the
emergency use of neonicotinoids as a seed treatment for the 2021/22
beet growing season. An independent scientific assessment is likely
to predict low aphid population levels as a result of prolonged
cold temperatures this February and as a consequence it is unlikely
that neonicotinoids will be deemed necessary. We continue to work
to secure a pesticide-free long-term solution in partnership with
sugar beet growers and seed producers.
The UK Department for Transport has announced an increase in the
mandated inclusion levels of renewable ethanol in petrol, moving
from a nominal 5% inclusion, E5, up to a nominal 10% inclusion,
E10. Having worked with the Department for Transport, we now plan
to re-open the Vivergo facility in Hull which uses domestic feed
grade wheat to produce bioethanol. Supply to UK fuel blenders is
expected from early 2022.
In Spain, revenue in the first half is expected to be in line
with last year. Sugar production is also expected to be in line
with last year. The beet campaigns have progressed successfully in
the north and the area planted in the south was ahead again this
year and the volume of raw sugar refined at the Guadalete facility
is underway and aligned with last year.
At Illovo, margins are expected to be well ahead of last year.
Significant cost reductions from the performance improvement
programmes and a recovery from operational difficulties in
Mozambique last year were major contributors. Margins also
benefited from higher prices, higher sales into domestic and
regional markets, and lower export sales. Some recovery of prices
benefited revenue in Zambia and export sales benefited from the
higher world sugar price.
The campaign in China has now been completed with sugar
production ahead of last year. Although revenue is expected to be
lower in the first half, with reduced sales ahead of Chinese New
Year, the profit impact has been offset by strong factory
performances.
For the full year, our expectation remains for operating profit
to be well ahead of last year with the major driver being the
strong recovery in Illovo. We expect nonetheless a softer
performance in the second half compared to last year with the
earlier profit phasing by Illovo this year and the start-up costs
for Vivergo now included in the second half.
Grocery
Revenue in the first half is expected to be 7% ahead of last
year at both actual and constant currency. Adjusted operating
profit is expected to be ahead, with strong performances by
Twinings Ovaltine and our UK Grocery businesses more than
offsetting lower margins in the Don meat business in Australia and
the Mazola vegetable oil business in the US.
The performance of Twinings Ovaltine reflected the changes in
consumption patterns as a result of COVID-19. Retail and online
sales increased but on-the-go and foodservice volumes continued to
be adversely affected in this period. We expect very strong revenue
growth for Ovaltine, driven by South East Asia, and in particular
in Thailand. Twinings revenue will be ahead of last year, driven by
growth in herbal and fruit infusions with a very strong performance
in France, delivering a significant improvement in market
share.
Silver Spoon, Jordans, Dorset Cereals, Ryvita, Patak's and Blue
Dragon all delivered growth as they benefited from significant
increases in consumer demand through the retail channel. Revenue in
Allied Bakeries will be in line with last year and a cost reduction
programme will be implemented this year to mitigate the
contribution loss following our decision last year to exit the
Co-op contract.
Profit at ACH will decline with significantly higher corn oil
costs and lower corn oil availability reducing the contribution
from Mazola. However, our baking businesses, ACH Mexico and
Anthony's Goods continued to deliver profit growth. Lower
foodservice and retail volumes in the Don meat business impacted
the profitability of George Weston Foods in Australia. Both Tip Top
and Yumi's will deliver strong growth.
Agriculture
Revenue and profit at AB Agri are expected to be ahead of last
year in the first half. Our business in China will deliver a
significant improvement with earlier phasing of sugar beet feed
sales, the benefit of cost improvement projects and strong feed
sales into the pig market. The pig population in China is now
increasing strongly as it recovers from the effects from African
Swine Fever. AB Neo, our business which specialises in feed for
animals in the early stages of life, delivered an improved margin
with an increase in sales volumes in Spain and Poland and the
benefits of better procurement.
ABN, our UK pig and poultry animal feed business, is planning to
build a state-of-the-art animal feed mill in the East of England as
part of an on-going investment programme. The investment aims to
provide a sustainable solution for increasing demand from an
industry currently close to capacity.
Ingredients
Revenue in the first half is expected to be ahead of last year
at constant currency. Margin will be significantly ahead driven
both by AB Mauri and ABF Ingredients.
AB Mauri benefited from increased demand for retail yeast and
retail bakery ingredients as the restrictions to contain the spread
of COVID-19 continued to support the popularity of home baking.
This has contributed to revenue increases in the retail channel
particularly in the Americas, Europe, China, and parts of Asia. The
business performance in South America has been resilient despite
difficult economic conditions. In Brazil the business has benefited
from increased demand in baking.
For ABF Ingredients, we expect strong revenue growth from our
speciality lipids business, ABITEC, and from our yeast extract
business, Ohly. Margin will benefit from increased sales of high
value products.
Brexit
Our businesses were well prepared for the end of the Brexit
transition period and we have seen no material disruption to our
supply chains.
ESG
The group intends to hold the first of a series of investor
events, setting out its approach to Environmental, Social and
Governance (ESG) factors on Monday 1 March.
For further enquiries please contact:
Associated British Foods
John Bason, Finance Director Tel: 020 7399 6500
Catherine Hicks, Corporate Affairs
Director
Citigate Dewe Rogerson
Chris Barrie, Jos Bieneman Tel: 020 7638 9571
Note:
Definitions of the alternative performance measures referred to
in this announcement can be found in note 30 of our Annual Report
and Accounts 2020.
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