Associated British Foods - Pre Close Period Trading Update
Associated British Foods plc has issued a trading update prior to entering its close period for its full year results to 13 September 2008, which are scheduled to be announced on 4 November 2008.
Primark accounts for about a third of the group's profits and has 181 stores in Britain, Ireland and Spain. It has managed to lift sales in the last six months despite the deepening slowdown on the UK high street as UK shoppers bargain-hunt.
Shares in the company rose 10p to £8 in early trading.
Other salient points....
"In our interim management statement issued on 10 July 2008 we reported that trading for the group since the half year had been in line with our expectations. This has continued to be the case. Progress in adjusted earnings per share is expected for the full year. Good growth in adjusted operating profit driven by Primark, Grocery and Agriculture will more than offset the previously highlighted decline in profit from our EU sugar operations and the higher interest charge which is a consequence of higher average net debt for the group.
"The income statement will include the following pre-tax exceptional items. The full permanent renunciation of sugar quota for the UK and Poland, agreed with the European Commission as part of the final phase of the EU regime reform, was 206,000 tonnes. Compensation receivable, net of the write-off of the unamortised cost of quota purchased in 2006 and factory closure costs, will be a gain of £23m. The proposed rationalisation of our Australian meat operations was announced in July and will require a charge of some £70m. The tax effect of these items will be treated as exceptional and, following a change of tax law in the UK Finance Act 2008 which will phase out Industrial Buildings Allowances, a further exceptional tax charge, currently estimated at £17m, will be made to reflect the consequential increase in deferred tax.
"Expenditure on acquisitions in the year will amount to some £225m primarily comprising the Italian and German yeast businesses of Gilde Bakery Ingredients for AB Mauri, beet sugar factories in north east China and KR Castlemaine in Australia. Proceeds from the disposal of our former German yeast business and the UK emulsifier business amounted to £54m.
"Net debt for the group at the year end will be substantially higher than last year. This will reflect the continued significant level of capital investment to develop opportunities in our existing businesses, many of which are of a long-term nature, the acquisition of new businesses and the impact of much higher commodity prices on working capital.
Sugar & Agriculture
"As expected Sugar profit will be substantially lower than last year. This is primarily the consequence of reform of the EU sugar regime but also reflects depressed sugar prices in China as a result of a record crop. Illovo has continued to trade well with an expectation of higher volumes and the benefit of higher domestic and world sugar prices.
"The European Commission has confirmed that it has virtually achieved its target for reduction in EU sugar production for the marketing year starting October 2008. The final reform changes to sugar reference price, levies, beet prices and access for Least Developed Countries will become effective in October 2009 and have already been announced. The challenge for the industry looking forward is the recovery of high input costs including energy and beet.
"Progress is being made in the development of the beet business in north east China and the expansion projects in Illovo.
"Agriculture continued the excellent performance delivered in the first half. UK animal feeds performed well and Frontier’s strong position in grain trading and increased demand for farm inputs drove further sales growth."
Primark accounts for about a third of the group's profits and has 181 stores in Britain, Ireland and Spain. It has managed to lift sales in the last six months despite the deepening slowdown on the UK high street as UK shoppers bargain-hunt.
Shares in the company rose 10p to £8 in early trading.
Other salient points....
"In our interim management statement issued on 10 July 2008 we reported that trading for the group since the half year had been in line with our expectations. This has continued to be the case. Progress in adjusted earnings per share is expected for the full year. Good growth in adjusted operating profit driven by Primark, Grocery and Agriculture will more than offset the previously highlighted decline in profit from our EU sugar operations and the higher interest charge which is a consequence of higher average net debt for the group.
"The income statement will include the following pre-tax exceptional items. The full permanent renunciation of sugar quota for the UK and Poland, agreed with the European Commission as part of the final phase of the EU regime reform, was 206,000 tonnes. Compensation receivable, net of the write-off of the unamortised cost of quota purchased in 2006 and factory closure costs, will be a gain of £23m. The proposed rationalisation of our Australian meat operations was announced in July and will require a charge of some £70m. The tax effect of these items will be treated as exceptional and, following a change of tax law in the UK Finance Act 2008 which will phase out Industrial Buildings Allowances, a further exceptional tax charge, currently estimated at £17m, will be made to reflect the consequential increase in deferred tax.
"Expenditure on acquisitions in the year will amount to some £225m primarily comprising the Italian and German yeast businesses of Gilde Bakery Ingredients for AB Mauri, beet sugar factories in north east China and KR Castlemaine in Australia. Proceeds from the disposal of our former German yeast business and the UK emulsifier business amounted to £54m.
"Net debt for the group at the year end will be substantially higher than last year. This will reflect the continued significant level of capital investment to develop opportunities in our existing businesses, many of which are of a long-term nature, the acquisition of new businesses and the impact of much higher commodity prices on working capital.
Sugar & Agriculture
"As expected Sugar profit will be substantially lower than last year. This is primarily the consequence of reform of the EU sugar regime but also reflects depressed sugar prices in China as a result of a record crop. Illovo has continued to trade well with an expectation of higher volumes and the benefit of higher domestic and world sugar prices.
"The European Commission has confirmed that it has virtually achieved its target for reduction in EU sugar production for the marketing year starting October 2008. The final reform changes to sugar reference price, levies, beet prices and access for Least Developed Countries will become effective in October 2009 and have already been announced. The challenge for the industry looking forward is the recovery of high input costs including energy and beet.
"Progress is being made in the development of the beet business in north east China and the expansion projects in Illovo.
"Agriculture continued the excellent performance delivered in the first half. UK animal feeds performed well and Frontier’s strong position in grain trading and increased demand for farm inputs drove further sales growth."
