On the money: ABF outperform but doubts remain over 2012
Associated British Foods (ABF) annual results came in ahead of expectations, but analysts have said question marks remain over 2012.
Yesterday (8 November), ABF posted revenue and profit growth in its annual results, even in the face of high raw material prices.
Revenue rose 9% to GBP11.1bn (US$17.8bn), while operating profit was up 3% to GBP842m. Profit before tax fell 1% to GBP757m, but last year's results included a profit of GBP28m on divestment and discontinuation of businesses.
In a conference call to analysts yesterday, George Weston, chief executive of ABF, admitted a strong dollar in Australia has caused its George Weston division to suffer, a sentiment echoed by many other food producers in the country.
He said: "It's been a difficult trading year for George Weston Foods in Australia. There are lower revenues and a reduction in profitability in the whole of the Australian food manufacturing sector.
"Despite a good GDP, the Australian consumer is saving a lot more and has started trading down, encouraged by retailers. We have seen a significant shift from branded products into own-label."
To overcome problems in the country, he says ABF must reduce the cost of the central overhead and improve mix and pricing in bread, adding that there is need for "hard work" with retail customers to achieve this.
However, Jordans cereal and Ryvita crackers, Weston said, had "turned a corner in volumes", also noting that ethnic food segments Blue Dragon and Pataks are brand leaders in the UK world foods market and praised their "very fine work indeed".
John Bason, the financial director, added that sugar yields look very positive for the future and highlighted the results were affected by ABF's clothing retail arm Primark, which did not pass on high cotton prices in order to retain its position and market share.
He said: "Maintenance of our grocery margin, despite a disappointing performance from George Weston Foods, was a great achievement."
ABF, which had a net capital investment of GBP825m for the year, expects capital expenditure to fall in most areas of the business, apart from Primark.
However, Weston hinted to reporters yesterday that the company may be eyeing struggling brands owned by rival Premier Foods.
Andrew Wood, an analyst at Bernstein Research said the full-year results were beyond what he was expecting, but the second half of the year still saw negative growth in adjusted profit before tax and negative adjusted EPS growth, rendering it a "rather challenging and somewhat disappointing" period.
"There was clearly a sense that the weakness of H2 2011 is likely to continue in the first half of 2011/2012", he added.
Wood also noted that ABF admitted the commodity situation is easing, something most companies are currently "loathe to admit".
Darren Shirley, of Shore Capital described the fiscal year as "a solid performance", particularly from ABF's sugar arm, which improved EBIT by 34%, despite a GBP20m adverse impact from the UK winter. Grocery was also robust, with EBIT growth of 11% despite the weak consumer and rising input costs.
Shirley forecasts strong growth for the next financial year thanks to easing commodity costs and projected strong EU and global prices.
"That said, we expect any progress in grocery to be offset by restructuring costs in Australia", he added.
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