ABF grocery, sugar and ingredients revenue rises

Associated British Foods expected revenue to increase across its Grocery, Ingredients and Sugar divisions

Associated British Foods (ABF) expects to report an “excellent performance” in first-half trading, due for release on April 19, driven by revenue growth in its Grocery, Sugar and Ingredients divisions.

An ABF statement read: “For the half year, we expect excellent progress in adjusted operating profit and adjusted earnings per share for the group. The trading outlook for the group for the full year is unchanged.

“Acquisitions in the year to date amount to £60M and with the benefit of net proceeds of £0.5bn from the sale of the US herbs and spices business and the south China cane sugar operations, we expect a net cash balance of some £200M at the half year.”

The group will report total revenues of £15.4bn, analysts predicted, and boosts in operating profit and earnings per share, in its interim results to March 4. It also anticipated stronger cash flow and a higher capital expenditure.

The half-year trading update will be published on April 19.

Profit boost

ABF’s Grocery division’s revenue and operating profit was expected to increase at constant currency and actual exchange rates. Twinings Ovaltine, Allied Bakeries and international sales will drive the profit boost, ABF said.

Twinings Ovaltine revenues were “well ahead of last year”, benefitting from fluctuating exchange rates with 80% of sales coming from overseas. It achieved market share gains in the UK, US, Australia and France.

Kingsmill re-branded packaging was “well received by customers and consumers”, which increased Allied Bakeries’ sales. Jordans and Dorest Cereals will report growth in the UK, Australia, Belgium, the Netherlands and France.

The Sugar division expected a “substantial increase in profit”, owing to higher sugar prices and increased production in Africa.

Substantially improve

Lower sugar beet costs and the weaker pound meant British Sugar’s operating profit will substantially improve over ABF’s first six months. African sugar producer Illovo made good progress, ABF said, despite poor crop yield in 2016 after unusually high temperatures and drought.

The Ingredients department – including yeast and bakery ingredient manufacturing – had an excellent six months, ABF claimed. European trading was in line with expectations, and revenue was expected to be ahead of last year at constant currency.

Meanwhile, City analyst Shore Capital was very encouraged by ABF’s progress. See the box below for more information.

 

City analyst’s view on Associated British Foods

“ABF has issued a trading update, with management guiding to excellent progress in the period, which is very encouraging in our view. However, with management stating that its trading outlook is ‘unchanged for the year with progress expected’ we do not anticipate changing our earnings per share forecast of 118.7p at this stage (or anticipate much change in consensus). Following what is a fundamentally strong and encouraging update we reiterate our ‘buy’ stance on ABF’s shares.”

Shore Capital analysts Darren Shirley and Clive Black.

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