TIDMABF
RNS Number : 7462D
Associated British Foods PLC
01 July 2021
1 July 2021
Associated British Foods plc
Trading update
Associated British Foods plc today issues a trading update for
the 40 weeks to 19 June 2021 which summarises the significant
trading developments since the last market update.
Trading performance
The following table sets out revenues by business segment for
the third quarter of our financial year and for the cumulative 40
weeks to 19 June 2021 and changes at constant currency(2) to
comparable periods in the prior year. The third quarter is the
16-week period from 28 February to 19 June 2021.
Third quarter constant Year to constant
GBPm fx date GBPm fx
Grocery 871 -3% 2,705 +2%
Sugar 406 +21% 1,169 +7%
Agriculture 391 +10% 1,137 +8%
Ingredients 376 +3% 1,111 +2%
Retail 1,605 +207% 3,837 -11%
---------------- -------------------- --------- --------------------------- ---------
Total 3,649 +47% 9,959 -2%
As expected Grocery revenues in the third quarter were lower
than last year, with a decline of 3%. Third quarter sales last year
were very strongly ahead of the prior year, with an increase of 9%,
with much higher retail channel volumes as a consequence of the
first lockdowns across our major markets. Sales in this quarter
were 6% higher than sales in the same pre-pandemic period two years
ago.
Sugar revenues in the quarter were significantly ahead, driven
by strong volumes in Illovo and China and higher prices in Europe
and Africa.
Primark revenues reached GBP1.6bn in the third quarter with the
reopening of all stores and the opening of seven new stores. These
revenues were well ahead of last year's third quarter sales of
GBP0.6bn, when the first lockdowns resulted in the closure of all
our stores for an average period of 12 weeks. This quarter, sales
in the reopened stores were ahead of expectation in all markets, a
number of new sales records were set and the like-for-like (1)
performance was much improved on earlier periods during this
pandemic reflecting an increase in both confidence and willingness
to spend by our customers. Primark's like-for-like (1) sales were
3% up on a two-year basis in the quarter, but volatility remains
high and performance varied by region depending on the degree of
restrictions related to COVID-19. Data for the total UK clothing
market, which includes online sales, for the seven-week period
after reopening shows both volume and value share gains for Primark
on a two-year basis.
Group cash generation in the quarter was both ahead of
expectation and much stronger than in prior years. Net cash before
lease liabilities(3) for the group increased from GBP705m at the
beginning of the quarter to over GBP1.45bn at the end of the
quarter. This improvement was mostly delivered by recovery in
Primark sales along with a reduction in the inventories which had
built up during lockdown. Assuming that no Primark stores are
closed in the remainder of this financial year, we expect the
excess inventory at the end of lockdown to have returned to more
normal levels by the financial year end. Net cash before lease
liabilities(3) for the group is expected to be above GBP1.7bn at
the financial year end.
For the full year, we now expect that the improved performance
at Illovo will result in a higher adjusted operating profit at AB
Sugar. Adjusted operating profit at Grocery is expected to be lower
than last financial year primarily driven by lower margins at ACH.
Following the encouraging sales performance by Primark since stores
reopened this quarter, we now have higher expectations for final
quarter sales. Our forecast for full year sales at Primark has
increased accordingly and adjusted operating profit, stated before
repayment of job retention scheme monies, is now expected to be
broadly in line with last year. Our outlook for the adjusted
operating profit for the group, stated before repayment of job
retention monies is now in line with last year.
The group's adjusted effective tax rate for the full year is now
expected to be some 31%, down from 34.9% forecast at the half year,
as a consequence of the increase in profits at Primark. Since the
half year the Government has enacted its proposal to increase the
UK corporation tax rate to 25% from April 2023. Our guidance for
the group's tax rate includes the deferred tax impact of this
measure in this financial year.
We expect these improvements in our outlook to result in
adjusted earnings per share for the group reaching a level below
last year, only reflecting the charge for repayment of the job
retention scheme monies and the higher year-on-year adjusted
effective tax rate.
References to changes in revenue in the following segmental
commentary are based on constant currency(2) .
ESG
In March 2021, the group held the first in a series of investor
events designed to set out our approach to this important topic.
This first presentation is available on our website www.abf.co.uk.
We will be holding our second event on 17 September with a focus on
Primark and its sustainability strategy, reducing its impact on the
environment and improving the lives of the people in its supply
chain.
Grocery
Grocery revenues in the first half were 8% ahead of the first
half last year which was before March 2020 when the major economic
consequences of COVID-19 started. However, sales in the third
quarter this year were 3% lower than the third quarter last year.
Although retail channel sales remained at elevated levels in many
of our markets this quarter, this has to be compared to the
exceptionally high retail channel volumes experienced during the
first lockdowns. Sales in the third quarter last year were 9% up on
the prior year and so sales this quarter were 6% ahead of the
pre-pandemic levels of two years ago.
In the third quarter Twinings Ovaltine sales were well ahead,
with the segment decline driven by ACH, George Weston Foods and UK
Grocery. Corn oil costs in the US have increased substantially this
year. These higher costs significantly impacted the profit margin
this quarter ahead of further price increases planned by Mazola for
the end of this financial year. For the full year, we expect
Grocery revenues to be ahead of last year but for operating profit
to decline by a mid-single digit percentage compared to last year
as a result of the ACH margin reduction.
Ovaltine sales were well ahead of last year driven by growth in
China, Switzerland, and in particular Thailand. Twinings revenues
were marginally lower in the quarter compared to last year's
exceptionally strong performance in the grocery channel following
widespread lockdowns in a number of our key markets. Twinings in
France continued to perform well, becoming the number one selling
tea brand in the quarter.
Although sales in this quarter were behind at AB World Foods,
Jordans and Dorset Cereals, Ryvita, Silver Spoon and Acetum, all
brands have grown sales compared to pre-COVID. Westmill and Sports
Nutrition showed significant growth in the quarter, driven by some
recovery in their out-of-home business. At Allied Bakeries,
expected volume reductions followed the exit from the supply of
bread to the Co-op in April. Cost reductions have been delivered to
mitigate the loss in contribution.
Revenues in ACH North America were lower, which compared to last
year's peak in demand for baking products, corn oil and
particularly consumer yeast. Revenue at George Weston Foods in
Australia was lower, with a marginal decline in Tip Top volumes and
a more substantial decline in the Don meat business. Yumi's strong
growth continued.
Sugar
AB Sugar had a strong third quarter with revenues 21% up on last
year bringing the cumulative increase in this financial year to 7%.
This was driven by particularly strong volumes in Illovo and China,
as well as by higher prices in Europe and Africa. The profit margin
in Illovo was much improved on last year and more than offset lower
European sugar margins, which were affected by higher production
costs as a consequence of the reduction in the beet crop. All
businesses continued to deliver savings from the on-going
performance improvement programme.
The world sugar price has risen in recent months. In the
European market, we expect demand to be in excess of production
again this coming year, which should give further pricing
opportunities if stronger global pricing is sustained.
UK sugar production of 0.9 million tonnes was well down on the
1.19 million tonnes produced last year, due to adverse weather
conditions at the time of planting and the severe impact of virus
yellows on sugar beet. Our production forecast for next year is
just over 1.0 million tonnes with a reversion to normal yields more
than offsetting a reduced planting area. The work to reopen the
Vivergo bioethanol facility in Hull is on target and supply to UK
fuel blenders is expected to commence in early 2022. Earlier this
year the UK Department for Transport announced an increase in the
mandated inclusion levels of renewable ethanol in petrol from E5 to
E10 to be effective from September.
Illovo revenues in the quarter were driven by strong domestic
sales. Sugar production is marginally ahead of last year after a
good start to the season in all countries except South Africa.
Higher sales and an improved sales mix, combined with cost benefits
from the performance improvement programme, delivered a higher than
expected improvement in profitability. In May we announced the
expansion of our operations in Tanzania which will more than double
our sugar production when commissioned in 2023. The additional
volumes will be sold domestically and this project will be a major
contributor to the Tanzanian government's objective of moving
towards sugar self-sufficiency.
The favourable phasing of sales volumes this quarter will likely
lead to a smaller increase in revenues in the fourth quarter.
Following the stronger than expected performance by Illovo, we
expect full year operating profit for AB Sugar to also be ahead of
previous expectations.
Ingredients
Revenue in the third quarter was 3% ahead of last year, driven
by both AB Mauri and ABF Ingredients.
AB Mauri experienced better demand compared to the third quarter
of last year which saw peak COVID-19 restrictions. Sales to
foodservice and craft channels in Europe were ahead with less
severe restrictions. In South America demand for yeast and bakery
ingredients remained strong and significant cost inflation has been
mitigated through price.
We saw year-on-year sales growth at ABF Ingredients in this
quarter.
Agriculture
AB Agri sales in the third quarter were 10% ahead of last year.
Revenues in our UK compound feed business and in China were well
ahead driven by higher wheat, soya and cereal prices. Nevertheless,
we saw lower revenues at AB Vista and AB Neo compared to last year,
when a number of our customers were building safety stocks in the
light of the first COVID-19 global lockdowns and subsequent supply
uncertainty.
Retail
This quarter has been characterised by the extensive reopening
of stores and all stores were trading at the period end. During the
quarter, restrictions on the movement of people and trading were
widespread and impacted our sales. Although restrictions eased
during the quarter, many remain in place with limitations on
tourist travel and trading hour restrictions having the most
impact. Primark revenues of GBP1.6bn in this quarter reflected the
build in sales as stores reopened. Third quarter sales of GBP0.6bn
last year followed the loss of sales in that period with all stores
closed for an average of 12 weeks.
The phasing of store reopenings this quarter is summarised in
this table.
Date Store Selling % selling
number space space open
m sqft
Open at 28 February
England, Wales 77 3.5 22%
Open at 12 April
Scotland, NI, Netherlands,
Portugal 227 9.5 57%
Open at 30 April
ROI, France, Germany 301 12.6 75%
Open at 19 June 396 16.8 100%
We were trading from 22% of our retail selling space at the
beginning of the quarter. The reopening of stores in England and
Wales on 12 April, which represent some 40% of retail selling
space, was a key milestone. All remaining stores reopened over the
subsequent two months.
Like-for-like (1) sales for the quarter were 3% ahead of the
comparable period two years ago when sales were at pre-COVID
levels. Our stores in the UK, Republic of Ireland, France and Italy
delivered very strong increases, the US was marginally ahead and
like-for-like (1) sales elsewhere in continental Europe were lower
reflecting trading restrictions. For the reopened stores
like-for-like (1) performances are based on trading for a small
number of weeks and reflect pent-up demand in the early weeks after
reopening. However, they are significantly better than the
performances after reopenings earlier in the pandemic driven by
higher customer footfall than on those occasions, an increase in
basket sizes and a lower level of markdown. Where we have been able
to see evolution of trading over a number of weeks, footfall and
basket sizes have declined from the peaks at reopening, although in
our strongest markets, higher than pre-COVID basket sizes have
continued and offset the lower footfall.
Data for the UK clothing, footwear and accessories markets,
which includes all channel and online sales, for the seven weeks
after the reopening of stores, shows both value and volume share
gains for Primark compared to the same period two years ago. Both
Primark and online gained share over this period.
The relevance and appeal of our value-for-money offering has
been evidenced by the number of customers that have returned to
shop in person in our stores, across every one of our markets, each
time we have reopened post-lockdown. This reopening has also seen a
resurgence in demand for fashion across womenswear and menswear, as
customers start to step out of lockdown leisurewear. There has been
a strong response to our two hero womenswear ranges for
spring/summer, Joyful Gelato and Garden Party, with the pink
gingham and purple blazers selling out within weeks supported by
digital marketing. Licence product performed very well with strong
sales in our NBA-branded and children's gaming ranges, particularly
in the US. Our new baby collection made a strong start.
Inventory at Primark during the last lockdown increased to some
GBP400m above our normal levels. Inventory has been falling during
the quarter and, assuming that all stores continue to trade for the
remainder of the financial year, we expect to return to a more
normal inventory at the financial year end.
Repayment of monies due from the job retention schemes will be
made before the financial year end and now covers the UK, Republic
of Ireland, Portugal, Czechia and Slovenia, for a total of GBP96m.
This compares to the estimate of GBP121m made at the time of the
interim results announcement for all job retention scheme funds
received by Primark from European governments and reflects those
markets where there is an established process for repayment.
Retail selling space has increased by a net 0.6 million sq ft
since the beginning of the financial year. We are now trading from
396 stores, 16.8 million sq ft of retail selling space, which
compares to 16.0 million sq ft a year ago. We successfully added
seven new stores in the third quarter: Chicago, our 12th store in
the US, Poznan in Poland, Tamworth in the UK, Bilbao Gran Via in
Spain, Rome Est in Italy, Prague Wenceslas Square in Czechia, and a
flagship 80,000 sq ft store in Rotterdam Forum in the Netherlands.
One of our first stores to open in the Netherlands, a small store
in Alkmaar, was closed during the period. Our Prague store is
located on the iconic Wenceslas Square in the heart of the city and
is our first store in what has become our 14(th) market. We expect
to open two further stores in this financial year, Marbella in
Spain and, around the year end, a store in the Fashion District of
Philadelphia in the US. This will take our total number of stores
to 398, trading from 16.9 million sq ft of retail selling
space.
Our new stores have had a positive reception from customers with
queues on opening day and very good sales. We have a healthy
pipeline of new stores and are looking forward to the opening of
our 400(th) store this autumn. We will build on our entry this year
into eastern Europe with more stores in Poland and Czechia, and our
first store in Slovakia. We will also continue to expand in France,
Spain, Portugal and Italy. In the US, our stores continue to trade
strongly. We had a strong response to our opening in Chicago and we
plan to accelerate our growth in the US.
We have grown our following across Primark's social media
channels to 24.5 million from 22 million at the end of the last
financial year. Digital has a critical role to play as part of
Primark's marketing mix and we are now investing in a
market-leading digital platform, a key component of which will be
the launch of a new customer-facing Primark website early in the
next calendar year. The improved functionality of the website will
allow us to showcase a much larger proportion of the Primark range
and provide to customers range availability by store. We are also
strengthening our digital marketing capability to enable us to
deliver more personalised content to customers.
With all Primark stores trading again, and in the light of the
additional sales generated since stores reopening and the
encouraging like-for-like (1) performance, we now expect Primark
profit for the full year, stated before repayment of job retention
scheme monies, to be broadly in line with that achieved last
year.
Notes:
1. Two year Like-for-like sales have been calculated on a
store-by-store basis, for those stores open in the period, and are
measured against the comparable trading days in 2019, which was
before any of the economic effects of COVID-19.
2. Constant currency measures are derived by translating the
relevant prior year figure at current year average exchange rates,
except for countries where CPI has escalated to extreme levels, in
which case actual exchange rates are used. There are currently two
countries where the group has operations in this position -
Argentina and Venezuela.
3. Net cash before lease liabilities comprises cash, cash
equivalents and overdrafts, current asset investments and
loans.
For further enquiries please contact:
Associated British Foods
Tel: 020 7399 6545
John Bason, Finance Director
Catherine Hicks, Group Corporate Affairs Director
Citigate Dewe Rogerson
Tel: 020 7638 9571
Chris Barrie Tel: 07968 727289
Jos Bieneman Tel: 07834 336650
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