ABF: Group revenue up ten percent

London / UK. (abf) Food, ingredients and retail group Associated British Foods PLC (ABF) issues an interim management statement for the 16 weeks to 08 January 2011 (Q1/2011), in accordance with the requirements of the UK Listing Authority´s Disclosure and Transparency rules. Highlights:
Group revenue up ten percent, up seven percent at constant exchange rates.
Trading performance for the period in line with expectations.
Primark growth – sales up twelve percent, up 13 percent at constant exchange rates.

Trading performance

	16 weeks to 08 January 2011
Sugar	07 percent
Agriculture	14 percent
Grocery	09 percent
Ingredients	06 percent
Retail	12 percent
Total group (continuing operations)	10 percent

When compared with the same period last year Sterling (GBP) was markedly weaker against the South African Rand (ZAR) and the Australian Dollar (AUD) which had a positive impact on translated results. At constant exchange rates revenue from continuing businesses was seven percent ahead.

The cost of a number of commodities increased significantly during the period. Higher sugar prices benefited ABF´s sugar profitability and price increases will be implemented to recover higher wheat costs, but higher cotton prices are expected to have some impact on Primark´s margins.

Sugar

In the UK, sugar beet yields at the beginning of the campaign were in line with expectations. However, the very recent sharp rise in temperature following the prolonged period of extremely cold weather before Christmas is having an adverse effect on the quality of sugar beet still to be processed. 75 percent of the crop has been processed but the effect on the remainder is still to be determined and a further update will be provided in the pre close period trading update on 28 February 2011. The bad weather also delayed the final stages of construction of Vivergo´s bioethanol plant by two months and production is now expected to commence at the beginning of the new financial year.

The campaign in Spain is progressing well but a shortage of imported cane raws has constrained volumes processed at the Guadalete refinery. The profit from Azucarera will be higher than last year with improved pricing and last year´s profit being unusually low due to the sale of high-cost inventory brought forward from the previous year.

At Illovo, operating profit was lower than in the same period last year. Serious drought in South Africa has reduced sugar production below expectations but, with an increase in Zambian production, the total volume for their year to March 2011 is expected to be similar to the prior year.

In China, the North is expected to achieve a larger beet crop driven by increased acreage and improved yields. However, in the South, cane yields have been affected by drought during the summer. Record sugar prices are expected to drive a strong increase in profit offset, in part, by lower sugar content for both beet and cane and by higher prices paid to farmers.

Agriculture

Each of the UK agriculture businesses achieved good growth with particularly strong sales of sugar beet feed by KW Trident and Premier Nutrition´s starter feed and pre-mixes. Trading at Frontier benefited from farmers selling their grain earlier than last year.

Grocery

Revenue was nine percent ahead of last year. Twinings Ovaltine performed strongly, notably in the UK and Australia, and good growth was achieved by all of the UK grocery businesses. Further increases in Kingsmill volumes and market share drove a good result at Allied Bakeries. The trading performance at George Weston Foods was below last year. Price deflation, driven mainly by promotional activity across the market, and increased competition affected both the bread and meat businesses. Commissioning of the Castlemaine meat factory has commenced and is progressing well.

Selling price increases are planned, or have already been implemented, to recover higher commodity costs, particularly in wheat, corn oil and spices. Delays in securing these increases will adversely affect margins and the impact of continued rises in commodity costs will need to be carefully managed.

Ingredients

Revenues were six percent ahead of last year and at constant currency were four percent higher. Yeast made good progress in China with higher domestic volumes, and bakery ingredients performed well in South America. These more than offset the effect of strong competition in yeast in Europe and the US. At ABF Ingredients, sales of feed enzymes and yeast extracts were strong. However, higher molasses prices in China have reduced operating margins and commissioning costs of the new yeast extracts factory in Harbin, China will adversely affect profit in the first half.

Retail

Trading at Primark for the period as a whole was in line with expectations despite the adverse effect of bad weather during the important pre-Christmas period. First quarter sales were 12 percent ahead of last year and 13 percent ahead at constant exchange rates. This growth reflects good like-for-like sales and an increase in retail selling space over the same period last year. At 08 January 2011, 214 stores were trading with 6,9 million square feet of selling space; up from 6,5 million square feet at the financial year end, with much of the increase occurring towards the end of the period. Ten new stores have been opened including six in the UK, five of which were former Bhs stores acquired last year, two in the Canary Islands, Gelsenkirchen in Germany and Hoofddorp in the Netherlands. ABF also relocated the store in Yeovil to a larger site. The development of the pipeline of new stores for Primark has been encouraging and capital expenditure on new stores in the full year is expected to be higher than last year.

Operating margin was higher than the same period last year but, as previously highlighted, this is expected to come under pressure primarily in the second half when the increase in VAT in the UK, which was effective from 04 January 2011, combines with the effect of higher cotton prices. Primark remains committed to offering the best value on the high street.

Financial position

Operating cash flow in the period was lower than last year with, as expected, a higher working capital outflow and increased capital expenditure, particularly on new stores for Primark. Net debt at 08 January 2011 remained below one billion GBP.

Trading outlook

Group results for the period were in line with ABF´s expectations but the impact of the continuing rise in some commodity costs will need to be managed over the coming months. The group continues to invest in the development of its businesses and further returns will be delivered as these investments complete. Last year saw a step change in the group´s profitability and although further growth is expected for the coming year, this will be moderated by the eventual impact of the adverse weather conditions on UK sugar production.