Associated British Foods (ABF) has announced pre-tax profit down 30% to £603m on group revenue up 2% to £7.4bn in the 24 weeks to 3 March as profits dived in its sugar division.
ABF also stressed that the previous comparative financial period included the benefit of profits on the sale of businesses, which accounted for the majority of the profits decline. Statutory operating profit fell a more modest 3% to £618m, while adjusted operating profits were down 1% to £648m.
Michael McLintock, in his first report to shareholders since succeeding Charles Sinclair as chairman earlier this month, said cash flow before acquisitions and disposals was lower than the corresponding period last year driven by a return to the usual seasonal cash outflow of AB Sugar and higher Primark inventories with deliveries accelerated ahead of Chinese New Year.
Gross capital expenditure of £388m was in line with last year and the purchase price, on a debt-free basis, of Acetum in October 2017 amounted to £282m.
“Together with the payment of the final dividend, these resulted in a net cash balance for the group at the half year of £123m, which compared to net cash of £673m at the beginning of the financial year,” he said.
In the first half, adjusted operating profit was in line with the previous year with growth in Primark, Grocery, Ingredients and Agriculture offset by the expected decline in profit at AB Sugar.
The group expected an acceleration in profit growth at Primark in the second half, as a result of margin improvement, and continued profit growth from its other non-sugar businesses. These should more than offset the decline in profit at AB Sugar “in the balance of the year”, McLintock said.
Revenue in the grocery business was ahead of last year, up 1% to £1.7bn with adjusted operating profit up 5% to £159m. They were driven by growth in Twinings Ovaltine, further margin improvement at George Weston Foods and a contribution from Acetum. Grocery margin increased to 9.5% as a result.
The UK saw an increase in the market share of private label bread. The Christmas trading period was “good” with Kingsmill the best performer. The group continued to invest in its brands with the launch of Kingsmill Super Seeds and craft loaves from Allinsons, and national television advertising celebrated the role that Kingsmill played in family life.
Continued progress had been made in reducing the operating loss at Allied Bakeries in this financial year, the statement said. The operating result at Silver Spoon was better than the same period last year with some price improvement. Billington’s, the premium unrefined baking sugar brand, had a successful marketing campaign which included a partnership with the Great British Bake Off and innovative recipe advertorials in The Times.
Jordans achieved good overseas growth, especially in Australia and Canada and, with the benefit of recent launches, in New Zealand and Brazil.
Ryvita Thins, in the UK, had shown continued growth although sales of crispbread had suffered from strong competition, particularly in the retail discounters. Good progress has been made with the construction of the new Ryvita bakery at Bardney, Lincolnshire, which was expected to be commissioned in September.
At AB World Foods, Patak’s delivered further share growth following the successful launch of paste pots which had strong endorsement by Jamie Oliver.
Westmill had another period of consistent growth in noodles, and ABF’s investment in a substantial increase in production capacity was well under way. Its premium market-leading atta flour, Elephant, was successfully relaunched with full marketing support.
ABF acquired Acetum, the Modena-based balsamic vinegar business, in October and its integration was progressing well. The prospects for this business were good although, following a poor European grape harvest, unusually high raw material costs were likely to impact margins in the second half of this financial year, the group said.
George Weston, chief executive, said: “The group made progress in this period. Good sales and profit growth was achieved by all of our businesses at constant currency, other than sugar, where the reduction was as expected.
“Our full year outlook for the group is unchanged with progress expected in both adjusted operating profit and adjusted earnings per share.”
Majestic WINE (WINE) has announced plans to accelerate growth “by materially increasing investment in new customer acquisition” in 2019.
The group said it was currently investing about £12m a year in new customer acquisition at a lifetime payback of more than four times, generating £48m per year of future value.
The opportunity to invest in new customer acquisition was materially bigger than previously thought and the board believed there was potential over time to double from the current level, it said.
Rowan Gormley, chief executive, said: “We are in the fortunate position of having the option to accelerate growth by investing in new customer acquisition.
“We are starting from a good place with the core business on track to meet our 2019 sales target of £500m and the market’s expectation for profits and dividend in FY18.
“In the last three years, we have doubled sales at Naked Wines and delivered profitability in all three markets - after increasing investment in new customer acquisition.”
The group believed it could double the level of investment again while maintaining the returns, driving sustained growth in shareholder value, Gormley said.
On a risk/return basis, the case for accelerating investment was clear. “We can measure success in months while delivering returns over years.”
The company also gave a full-year 2018 update in which it said trading was in line with market expectations. Sales were on track to hit £500m next year. FY18 adjusted EBIT was expected to be in line with market expectations.
Balance sheet and cash flow remained strong, with FY18 net debt expected to be reported at arund.0.4x EBITDA, below its target of 0.5x EBITDA.
The group will host a Capital Markets Day for analysts and investors in London this afternoon to present the its future investment strategy and growth ambitions.
Majestic will host a follow up Capital Markets Day for US investors on 1 May at the Naked Wines USA office in Napa, California.
Imran Nawaz has been appointed chief financial officer of TATE & Lyle (TATE), the 2.8bn turnover food ingredients business, and joins the board with effect from 1 August. He succeeds Nick Hampton, who became chief executive on 1 April
Nawaz joins from Mondelēz International where he has been senior vice-president finance Europe since 2014. He previously held several senior financial roles across Europe, the Middle East and Africa during a 16-year career at Mondelēz and Kraft Foods.
He has been appointed on an annual salary of £470,000. This will next be reviewed in April 2019. He will also receive a company contribution to his pension plan of 20% of base salary. He will also be eligible for a bonus under Tate & Lyle’s discretionary bonus scheme.
Hampton said: “I am delighted to welcome Imran to Tate & Lyle and the executive team. He brings with him deep experience of the global food industry, and a proven track record of financial leadership. I very much look forward to working with him as we continue to drive the company’s growth agenda.”
Gerry Murphy, chairman of Tate & Lyle said: “Imran’s broad financial, business and international experience will be of great value to Tate & Lyle, and he is a very welcome addition to our board.”
On the markets this morning, the FTSE 100 fell 0.04% in early trading to 7,195.5pts
Early risers include Premier Food (PFD), up 1.6% at 37.9p, Coca Cola HBC (CCCH), up 1.1% at 2.495p, Ocado Group (OCDO), up 0.4% at 511.8p, DS Smith (SMDS), up 0.2% at 496.2p and Fevertree Drinks (FEVR), up 0.4% at 2,700p.
Early fallers include Devro (DVO), down 3.2% at 215p, Associated British Foods, down 1.5% at 2,544p following this morning’s subdued first-half results, Glanbia (GLB), down 1.2% at €13.7, and Majestic Wine, off 3% at 385p, despite its positive statement to the Stock Exchange.
Yesterday in the City
The FTSE 100 closed down 0.9% yesterday at 7,198.2p.
The main grocery story of the day was the news that year-on-year, footfall last month fell 6%, a substantial decline compared with 1.3% growth in March 2017, the latest British Retail Consortium (BRC)-Springboard Footfall and Vacancies Monitor shows.
It was the steepest year-on-year fall since the end of 2010. The 12-month average is a fall of 1.4%.
There was no growth in footfall for any UK regions. The most notable year-on-year declines were seen in Greater London, down 7.5%, South East, 6.5%, and East Midlands, 5.6%.
Growth fell in all shopping destinations: high streets saw a decline of 8.6%, retail parks, 1.8% and shopping centres, 4.8%.
Helen Dickinson, chief executive, of the BRC, said that while the prolonged period of bad weather has had an impact on shoppers visiting the high street, “we are seeing a longer term trend of reduced footfall which highlights that shoppers face more choice in terms of how, where and when they shop.
“The retail environment is changing and retailers are investing in innovation and technology adaptations in response to this. Policy-makers must also play their part with a vision for a modern business taxation system which reflects this new environment.”
Market fallers included Just Eat (JE), which closed down 2% at 720.8p, McColl’s Retail Group (MCLS), down 2.9% at 232p, Ocado Group (OCDO), down 1.5% at 510p, Premier Foods (PFD), off 1.6% at 37.3p and Diageo, down 1.3% at 2,459p.