AB Foods: Raises Profit Forecast

London / UK. (abf) Associated British Foods PLC (ABF) raised the group´s full-year earnings guidance, boosted by accelerated growth at the clothing chain and recovery in its sugar business. AB Foods said in its youngest «Pre Close Period Trading Update» that trading for the group since the half year has been strong resulting in an increase in adjusted operating profit for the second half compared to last year. Although the interest charge will be substantially higher, the company now expects some progress in adjusted earnings for the full year.

Expenditure on acquisitions in the year, including debt assumed, will amount to some 370 million GBP, primarily comprising the Iberian sugar business, Azucarera Ebro, and a sugar cane farm in Zambia. Proceeds from the disposal of a number of small businesses amounted to 14 million GBP.

Net Debt

Further progress in working capital management in the second half will result in an outflow substantially lower than last year, more than covering the increase in capital expenditure. Advanced consideration of some 120 million GBP has been received in respect of the sale of the Polish sugar business which will complete later this year subject to regulatory clearance. Net debt for the group at the year end is now expected to be close to the level at the half year. The rights issue announced by Illovo in South Africa will complete early in the group´s new financial year which will result in a further reduction in the group´s net debt of some 100 million GBP.

Sugar + Agriculture

Sugar profit will be substantially ahead of last year driven by growth in the EU and Illovo which more than offset losses in China.

In the EU, ABF´s UK and Polish businesses delivered good results with solid operating performances, robust sales, the benefit of a strong Euro and favourable energy costs. ABF acquired Azucarera Ebro, the leading sugar producer in Iberia, in April this year. This was followed by the announcement in August that the company had reached agreement to sell its Polish sugar business, the country´s fourth largest producer, to Pfeifer + Langen Polska S.A. Completion, which is subject to regulatory approval, is expected in late 2009. The combination of ABF´s leading position in the UK with that of Azucarera Ebro in Iberia, together with access to the sugars of the Least Developed Countries provided by Illovo, gives the company a strong presence in the EU market (…).

Grocery

Grocery achieved good revenue and operating profit growth in the second half which was driven by progress in Allied Bakeries, Twinings Ovaltine and ABF´s business in Australia. Performance at ACH (?) in the US has steadily improved during the second half with higher Mazola volumes and the full utilisation of the high priced corn oil contracts that depressed first half profit (…).

The UK grocery businesses made further progress led by a strong performance from Allied Bakeries with increased margins from further improvements in operations. Twinings Ovaltine continued to deliver growth, particularly from Ovaltine in its developing markets, and from high consumer demand for Everyday tea. Silver Spoon benefited from increased demand for home baking ingredients which, combined with distribution gains, resulted in higher sales and market share across the Silver Spoon sugar and Allinson flour ranges. Closure of the Newark packaging plant and transfer of operations to an expanded plant at Bury is on plan to complete in the Autumn. The ethnic foodservice sector in the UK continued to suffer from the effects of recession which has impacted sales by Westmill Foods and its profit will be lower than last year as a consequence.

Ingredients

The Ingredients businesses continued to benefit from the weakness of sterling against the US-Dollar and the Euro. The yeast and bakery ingredients business of AB Mauri performed well, with good progress made in yeast in South America and in technical ingredients in the Americas, but with tough trading conditions experienced in India. ABF recently ceased production at its small yeast facility in Ireland and transferred the operation to Hull in the UK. AB Foods also completed the sale of the Gilde Bakery Ingredients business in Iberia and its manufacturing plant in Portugal in accordance with the agreement reached with the EU Commission.

ABF Ingredients had a difficult year with lower sales volumes and pressure on margins as some commodity prices fell. Feed enzymes performed well with good growth generated from geographic expansion and new products. The enzymes capacity expansion in Finland is complete and expansion of the Chinese yeast plant in Harbin and construction of an adjoining yeast extracts facility are on schedule.

Retail

Sales and profit at Primark will again be well ahead of last year. ABF expects to have opened six new stores in the second half of the year, two in Spain, one each in Germany and Portugal, and two in the UK. ABF closed two smaller stores in Bristol and Tooting when the new stores were opened there. This will bring the total number of stores to 191 by the year end. The company will be trading from 5,9 million square feet of selling space which is an increase of nine percent since last year end. Like-for-like sales growth of seven percent is expected for the full year driven by a very strong performance in the UK. This performance was achieved through Primark´s strong competitive position, its highly appealing merchandise and better weather than last year. The stores in Continental Europe have performed well although it is early days for Germany and Portugal. Operating profit margin is expected to be lower than last year, impacted by the increased fixed overhead of the new UK distribution centre, as was the case in the first half, but also by lower gross margins as a result of the effect of sterling weakness on the cost of goods priced in US-Dollars.