Associated British Foods – Trading Update

Trading update

Associated British Foods plc today issues a trading update for the 16 weeks to 8 January 2022 summarising the significant trading developments since the last market update.

Group revenue

Group revenue from continuing operations for the 16 weeks ended 8 January 2022, compared to the 16 weeks ending 2 January 2021, was 16% higher at actual exchange rates. At constant currency, revenue from continuing operations was 19% higher. The following table sets out revenue on a segmental basis for the period with changes to the prior year.

Grocery, Sugar, Agriculture and Ingredients revenues in aggregate were 6% ahead of last year at constant currency. Sugar revenues were driven by strong European sugar prices and Ingredients revenues by a recovery in volumes from COVID-19 affected levels last year. All businesses have experienced inflationary pressures in raw materials, commodities, supply chain and energy. Margins in Grocery and Ingredients were impacted where sales price actions have lagged the effects of input cost inflation.

Retail sales were 36% ahead of last year at constant currency with an operating profit margin ahead of our expectations. All of our stores are trading and remained open throughout the period, except for short periods in Austria and the Netherlands. Like-for-like sales in this period improved compared to the final quarter of our 2021 financial year. The improving trend in customer footfall was interrupted in December by the rapid rise in COVID-19 cases of the Omicron variant but we are now seeing a recovery in UK and Ireland footfall.

Cash flow year-to-date has been strong compared to last year driven by good trading, and at Primark lower markdowns and the sale of inventory carried forward from the autumn/winter season last year.

References to changes in revenue in the following segmental commentary are based on constant currency.

Grocery

Grocery sales were 2% ahead of last year. Our businesses have experienced high levels of input cost inflation and margins were reduced in the quarter due to the phasing of the implementation of mitigating pricing actions.

Twinings Ovaltine performed well this period with strong Ovaltine revenue growth with higher volumes in emerging markets. Twinings revenue growth was driven by the growth and new product launches in Wellbeing teas which offset a reduction in some retail sales from the high COVID-19 affected volumes last year.

ACH revenue increase was driven by several price increases for its vegetable oils, which mitigated the impact of rising commodity costs. The sales performance at George Weston Foods in Australia was driven by good results from Tip Top foodservice and gluten-free retail bread products along with higher Don meat volumes. 

Sugar

AB Sugar revenue was 12% ahead of last year, with operating profit ahead of last year. The revenue increase was driven by stronger European sugar prices, higher Illovo domestic sales and improved pricing for bioethanol produced by British Sugar at Wissington. All businesses have been focused on mitigating the effects of significant cost input inflation, particularly in energy costs.

European sugar prices increased over last year as a consequence of low European sugar stocks combined with higher world market prices. Estimates for European sugar production in the 2021/22 campaign are slightly higher with a recovery in yields to more normal levels, supported by good growing conditions. Our UK and Spanish businesses have largely contracted sales for the financial year at these pricing levels.

Sugar production in the UK for the 2021/22 campaign is expected to be 1.04 million tonnes, compared to 0.9 million tonnes produced in the last campaign with higher yields more than offsetting the reduced growing area.  Energy costs are at very high levels but forward contracts have avoided the impact of these during the first quarter. Preparation for the start of production at the Vivergo biofuel plant in Hull is well advanced.

The trading performance in Spain has improved, with higher prices and volumes partially offset by a higher proportion of sugar produced from cane raws.

Illovo continued to deliver strong domestic sales in Zambia, Malawi and Tanzania along with a strong contribution from co-products in South Africa.

However, there was some disruption to production in Zambia, Eswatini and Mozambique in the period. Contracts have been placed and site works commenced for a major expansion of our sugar production capacity in Tanzania.

AB Sugar China trading performance was in line with last year.