ASSOCIATED BRITISH FOODS : Interim Management Statement

Associated British Foods plc today issues its third quarter management statement, in accordance with the requirements of the UK Listing Authority’s Disclosure and Transparency rules.  The figures stated below relate to the 40 weeks ended 25 June 2011.

• Group revenue from continuing operations year to date up 9%
• Primark growth - sales year to date up 13%, up 14% at constant exchange rates
• Group trading outlook for the full year in line with expectations

Trading performance

Year-on-year change in revenues:

Sugar

Sugar revenues in the last 16 weeks were 6% below last year reflecting the absence of export sales from the UK and lower sales in South Africa only partly offset by increases elsewhere.  Revenues were 5% ahead year-to-date.

As estimated at the half year, the UK campaign produced just below 1.0 million tonnes of sugar following the severe frost damage sustained during the winter.  The profit impact of the crop shortfall remains in the region of £20m for the full year after some recovery through price increases.  The production shortfall also resulted in a significant reduction in non-quota export sales from the UK compared with last year, with no exports being made in the third quarter.

The beet campaign in northern Spain went well and expectations are positive for the southern campaign which started in mid June.  Raw sugar imports into Europe have been low, primarily due to the higher world market price and lack of available supply.  Even so, the Guadalete refinery operated ahead of forecast at around two thirds of capacity in the period.  Revenue for the quarter was ahead of last year with the benefit of higher prices.

Illovo’s operations have all now started their 2011-12 season.  Local and regional prices are rising in response to world market pressures and EU export prices have improved due to a combination of favourable exchange rates and higher European prices.  As expected, revenues were lower in the quarter with some delayed start-ups and with lower volumes as previously reported from the drought affected South African crop.  The Swaziland expansion and co-generation scheme was completed in time for the mid-April start-up and commissioning is almost complete.  In Zambia, the new season has started well with the expanded factory performing at capacity.

In China, revenue was sharply ahead in the quarter reflecting both higher prices and volumes.  Sugar pricing in China has remained strong due to limited imports into this deficit market.  Total sugar production was 627,000 tonnes for the full year, an 8% increase over last year driven by a successful beet campaign in the north east where the crop was more than double the size of the previous year reflecting a larger growing area and better field yields.

Following delays caused by contractor performance issues, construction activity has recommenced at Vivergo’s bioethanol plant in Hull.  The project is expected to complete in Spring 2012.

Agriculture

Agriculture is having another strong year with total revenue 17% ahead, both in the last 16 weeks and in the year-to-date.  UK feed revenues were ahead in all sectors in the quarter reflecting higher commodity prices for grain.  Growth in speciality feeds and nutrition continued to outperform expectations and Frontier’s trading revenues also maintained their first half momentum.

Grocery

Grocery revenues in the quarter increased by 6% over last year and were 7% ahead year to date.  Twinings Ovaltine achieved further good growth in the quarter with higher volumes and strong pricing across the group but notably for tea in the US and for Ovaltine in Thailand and its developing markets.  In UK Grocery, the retail environment remains very competitive with high promotional activity in the large multiple retailers.  Jordans and Ryvita achieved strong sales growth on the back of effective marketing and Silver Spoon’s baking ingredients also performed strongly with consumers returning to home baking.  The Indian and Chinese restaurant sectors continued to be weak which affected Westmill’s sales.  Blue Dragon performed in line with expectations following its relaunch and Pataks continued to perform well.  Promotional discounting resulted in some margin erosion in Kingsmill in the quarter.

In the US and Mexico further price increases were implemented in response to the continued increase in commodity costs, particularly in vegetable oils and spices, and this had an adverse affect on volumes.  In Australia, the trading environment remains difficult with price competition between the two major retailers continuing to impact on George Weston Foods’ revenues and margin and bakery profitability continued to suffer from an inability to pass on fully the increase in wheat costs.

Ingredients

Ingredients’ revenues were 2% ahead in the quarter and 5% ahead in the year-to-date.  The yeast business continued to trade well in its established markets in Latin America and in bakery ingredients.  Difficult trading conditions are being experienced in the yeast businesses in Europe and North America and direct cost pressures are being felt in Europe and China.  The new yeast and yeast extracts plant in Harbin, China is now fully commissioned.  Further yeast expansions are under way to meet expectations for growing demand.  A new yeast facility in Mexico is being constructed and will be commissioned at the end of the next financial year.  At ABF Ingredients, the dairy proteins business benefited from strong global dairy markets where lactose and whey protein prices are strengthening on the back of growing demand.  The feed and bakery enyzmes businesses continued to perform well with product innovation driving growth.

Retail

Primark revenue year-to-date increased by 13% and by 14% at constant exchange rates.  This was driven by an increase in retail selling space and further like-for-like sales growth.  Sales since the half year were 15% ahead where a like-for-like sales increase in the UK and Ireland was achieved against a background of weak consumer demand.  Trading in continental Europe remained strong.  As explained in our interim results, operating margins are lower in the second half reflecting higher input prices and the full effect of the absorption of the UK VAT increase.

At 25 June 2011 we were trading from 220 stores with 7.1 million sq ft of selling space.  Since the half year we have opened six new stores; three in the UK in Scunthorpe, Ilford and King’s Lynn, two in Portugal at Portimao in the Algarve and at Forum Sintra south of Lisbon, and one at La Coruna in Spain.  In September we will be opening a new 46,000 sq ft store in the new Westfield Stratford City shopping centre next to the 2012 Olympic Park.

Financial position

Higher commodity costs, which were the principal reason for the larger than usual increase in working capital in the first half, continued to affect cash flows in the third quarter.  Capital expenditure remained substantially ahead of last year driven largely by the increased level of investment in new stores for Primark.  Net debt at 25 June 2011 was £1.4bn and is forecast to reduce in line with expectations by the year end.

Trading outlook

Trading for the group since the half year remains on track to deliver adjusted earnings for the full year similar to last year’s very strong result.

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Associated British Foods

Citigate Dewe Rogerson