Sugar division woes hold back ABF's first half performance

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Associated British Foods (ABF) has posted a 15% drop in first half pre-tax profits as the plunge in margins at its AB Sugar division hit overall performance once more.

Statutory pre-tax profits were down 15% to £515m in the 24 weeks to 2 March on group revenue up 1% to £7.5bn, or 2% higher at constant currency rates.

CEO George Weston described the performance as “a robust set of results”. He said profit at AB Sugar was substantially reduced again, but expected sugar profitability to improve from now on.

The sugar division barely broke even in the first half, having posted a profit of £106m in the same period in 2017, while revenues dropped a further 13% to £769m.

“The strong underlying growth in grocery profits [revenue 3% ahead of last year at constant currency] demonstrates good momentum. Primark delivered excellent profit growth, driven by further development of our customer experience and selling space expansion,” he said.

Grocery revenue increased 4% on last year. The major contributors to this growth were George Weston Foods in Australia, including the first contribution from Yumi’s, a full half year contribution from Acetum, Twinings Ovaltine and pricing at Allied Bakeries.

Operating profit for the division in the first half was up 2% at constant currency. However, this includes a £12m one-time cost for the closure of the Twinings tea factory in Jinqiao, China. On an underlying basis grocery profit increased 10% on last year and margin was well ahead, the group said.

Twinings Ovaltine, George Weston Foods, ACH in the US, and improved profitability at Acetum drove this margin improvement.

Twinings Ovaltine revenues were ahead of last year with especially strong growth in Twinings, the group reported. Sales in Australia and the UK benefited from the success of the Cold Infuse teas range launched last summer leading to record market shares in both countries. In addition, good growth was achieved in the US, China and Italy.

Ovaltine increased sales in Switzerland through new product launches and achieved “good” growth in Brazil, although sales in Thailand were lower than an exceptionally strong first half last year.

It reported good sales growth for Jordans and Ryvita in a number of international markets. Sales of Ryvita Thins grew in the UK, although profit declined because of increased raw materials costs.

It commissioed the new Ryvita bakery in Bardney, Lincolnshire and the closure of the production facility at Poundbury, Dorset.

At AB World Foods sales of Blue Dragon increased in the UK, while strong market share gains were delivered in the US through expanded distribution and supported by the successful Patak’s paste pots advertising campaign featuring Jamie Oliver. Westmill achieved further growth in sales of noodles, although rice sales declined in a highly competitive market.

At Allied Bakeries, recent customer discussions on pricing had “some success” but also led to the termination of the group’s largest private label bread manufacturing contract by a major retailer.

The group benefited from a full period of ownership of Acetum, the leading Italian producer of Balsamic Vinegar of Modena, which was acquired in October 2017.

Margins improved with grape must prices lower than the exceptionally high level last year following a poor grape harvest in 2017. Sales increased in the important market of Germany, distribution was extended in Australia and the Mazzetti brand was introduced to the UK.

At ACH in the US sales of Mazola corn oil increased strongly, supported by successful television advertising, and delivered further volume and share growth in a competitive consumer oils market.

Sales at George Weston Foods in Australia increased and margins improved “significantly”.

Michael McLintock, chairman, said the group continued to invest for the long term with a gross investment of £433m. Capital expenditure was £382m.

“In our food businesses, investments were made to expand capacity, including a new state-of-the-art Ryvita bakery in Bardney, Lincolnshire, and Westmill’s new noodle line in Manchester.

“Cost reduction remained a focus for capital projects in our sugar, yeast and bakery ingredients businesses, while the expansion of Twinings’ tea factory in Poland enabled the consolidation of production from, and closure of, its facility in China.

“In September 2018 we acquired Yumi’s Quality Foods, an Australian manufacturer of premium chilled dips and snacks.”

McLintock said cash flow before acquisitions and disposals improved compared with the corresponding period last year driven by a reduction in the usual seasonal working capital outflow in the first half.

Capital expenditure was in line with last year and consideration paid for businesses acquired during the period amounted to £47m.

“Together with the payment of the final dividend, these resulted in a net cash balance for the group at the half year of £386m, up from £123m at this time last year, and compared to net cash of £614m at the beginning of the financial year,” he said.

The underlying growth in grocery was expected to continue in the second half.

Morning update

Supermarket Income REIT (SUPR) has bought a Tesco Extra hypermarket in Mansfield, Nottinghamshire, from the Charities Property Fund (CPF) for £45m net of acquisition costs reflecting a net initial yield of 5.2%.

The nine-acre site was developed in 2007 at a prominent roadside junction in the town centre. It comprises a 90,000 sq ft Tesco Extra, about 530 parking spaces and a 12-pump petrol filling station.

The REIT has acquired the store with an unexpired lease term of 20 years with annual, upward-only, RPI-linked rent reviews on fully repairing and insuring terms. The next rent review is in March 2020.

The purchase price includes £33.7m cash, funded from the proceeds of the £45m equity placing on 22 Marc, and the issue to CPF of more than 10.9m new shares in the company at 103p per share

Ben Green, director of Atrato Capital, the investment adviser to Supermarket Income REIT, said: “This acquisition increases both the average unexpired lease term and the net initial yield of our portfolio.

“We are especially pleased to have been able to use Supermarket Income REIT shares as part consideration in a property acquisition for the first time.

“We believe there are many investors who own individual supermarket properties that would benefit from swapping their ownership into shares in Supermarket Income REIT, gaining our diversification and specialist management.”

Elsewhere, Glanbia (GLB) grew revenues 8.4% in the first quarter at constant currency, and 16.2% on a reported basis, the global nutrition group reported.

The reported figure reflects the stronger US Dollar Euro foreign exchange rate.

Siobhan Talbot, group managing director, said the revenue performance was underpinned by growth in both Glanbia Nutritionals and Glanbia Performance Nutrition.

“Glanbia Nutritionals was the main driver of revenue growth with a good performance in particular from the Nutritional Solutions business.

Glanbia Performance Nutrition revenue growth in the first quarter was driven by a strong performance from the recently acquired SlimFast brand.

“Our strategy remains on track and we reiterate our full year guidance of 5% to 8% growth in adjusted earnings per share, constant currency, in 2019, with growth to be delivered in the second half of the year,” said Talbot.

The company announced that John Daly, chairman of Britvic and Vivo Energy, would be appointed to the board as an independent non-executive director on 1 May. Paul Haran would retire the same day. Dan O’Connor will take up the role of senior independent director.

The group said drivers of revenue increase on a constant currency basis were volume growth of 1.4%, acquisitions of 9.7% offset by a price decline of 2.7%.

Heineken’s (HEIA) first-quarter trading saw beer volumes grow 4.3% organically with grown from all regions.

Heineken volume grew 8.3% with double digit growth in Africa, Middle East & Eastern Europe and the Americas.

Jean-François van Boxmeer, chairman and chief executive, said: “We had a positive start to the year with volume growth across all regions despite the later timing of Easter, underlining our continued focus on growth and the breadth of our geographic footprint.

“The Heineken brand volume was up 8.3%. Our outlook for 2019 remains unchanged, we anticipate our operating profit to grow by mid-single digit on an organic basis.”

Yesterday afternoon, the Coca-Cola Company (KO) reported “solid” operating results in the first quarter. It noted the continued momentum that included gaining global value share.

Reported net revenues grew 5% in the first quarter, and organic revenues grew 6%, with positive performance across all operating groups, in addition to a benefit from timing.

James Quincey, CEO, said: “We’re encouraged by our first quarter results as our disciplined growth strategies continue to deliver strong underlying performance.”

“We remain confident in our full year guidance as we continue to make progress on our transformation as a consumer-centric total beverage company.”

Procter & Gamble (PG) has reported third quarter fiscal year 2019 net sales of $16.5b, an increase of 1% on the previous year.

Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased 5%.

Diluted net earnings per share were $1.04, up 9%. Core earnings per share increased six percent to $1.06. Operating cash flow was $3.5bon for the quarter.

David Taylor, chairman, president and chief executive, said: “We delivered another quarter of strong organic sales growth, enabling us to further increase our outlook for the year.

“Cash generation also remains strong, supporting an increase in our cash productivity target and extending our long track record of dividend increases.

“Our focus on superiority, productivity and improving P&G’s organisation and culture is delivering improved results despite a challenging competitive and macroeconomic environment,” he said.

On the markets this morning, the FTSE 100 fell 0.2% in early trading to 7,505.2pts.

Early risers include British American Tobacco (BATS) up 1% to 3,088.5p, Tesco (TSCO) up 1.2% at 253p and Hilton Food Group (HFG) up 0.2% at 980p and Sainsbury’s, up 0.7% at 232p.

Fallers so far today include PayPoint (PAY), down 4.4% at 924p,Applegreen (APGN), off 2.5% at 466p, Associated British Foods (ABF) down 0.5% to 2,493 following this morning’s interims and Coca Cola HBC AG (CCH), slipped 0.6” to 2,728p. Greencore Group (GNC) was off 0.6% at 224p.

Yesterday in the City

The FTSE 100 ended the day up 0.85% at 7.523.1pts.

Climbers included British American Tobacco (BATS) up 1% at 3,088.5p, Coca Cola HBC AG (CCH) up 1.5% at 2,745p, Devro (DVO), up 2.43% at 185.2 and Diageo (DGE) closed 1.7% higher at 3,180.5p.

Among the fallers were McBride (MCB), off 1.9% at 104p, Wynnstay Group (WYN), down 1.35% to 365p and Majestic Wine (WINE), slipped 1.3% to 234.5p.

The Competition & Markets Authority (CMA) expects to publish its final report on the Sainsbury’s/Asda merger on 25 April.

The CMA announced in February that it had provisionally found that a merger between the two could “on the balance of probabilities” be expected to result in a substantial lessening of competition in markets in the UK.

SSP Group (SSPG) announced it had completed the planned acquisition of its 49% stake in Travel Food Services Private Limited, one of India’s largest travel food companies.

Hilton Food Group (HFG) posted its annual report and financial statements for the year ended 30 December last year when revenue climbed from £1.36bn to £1.65bn and operating profit rose from £35.1m to £46.3m.