Beyond the continued growth of Associated British Foods’ discount clothing chain Primark, the UK-based group’s grocery business generally met expectations in the first half of the year.
Andrew Wood, senior research analyst, European food and HPC, Sanford Bernstein
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There were no major surprises (positive or negative) and the H1 2013 results were very much in line with our expectations – fully in line on the top-line, slightly ahead on margins, slightly below on EPS. The outstanding like-for-like growth at Primark (+7%) was already known/expected, as was the pace of new openings (total sales growth was +24%) but margin growth (+240bps) was much better than expected. However, weak top-line growth in grocery (just +1%) and weak margin growth at sugar (-200bps) served to somewhat dampen performance at the total company level. Indeed, with the exception of sugar in 2012, all of AB Foods’ other businesses generally serve to drag down the outstanding performance of Primark and this is likely to continue in 2013 and beyond.
Following on from the weak top-line growth performance of 2012 (+1%), Grocery was again weak in H1 2013 (+1%) in-line with our estimate. However, H1 margins (+115bps vs. our +90bps) improved considerably, helped by the removal of restructuring costs at George Weston Foods and Allied Bakeries that had been included in underlying in 2012. Management specifically alluded to slower profit growth for Primark for the FY compared to H1 and a reduction in profit from Sugar…although Grocery strength should continue.
Darren Shirley, Shore Capital
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Associated British Foods has confirmed an outstanding performance. On a divisional basis, the group reported results broadly in line with Shore Capital expectations in grocery (+29%), agriculture (+25%) and ingredients (down c90% including a GBP15m restructuring charge), though exceeded our expectations in sugar and retail.
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By GlobalDataGrocery was pretty much in line with expectations. Profits were driven by the non-recurrance of restructuring costs from last year. It’s a business of mixed fortunes. Ovaltine and Twinings continues to trade strongly. ABF was talking positively about the performance of UK brands like Ryvita, Patak’s and Jordans. That portfolio continues to perform well. At Allied Bakeries, volumes have been under pressure after price increases but they are starting servicing the Co-op on Thursday, which should improve volumes and profitability. Silver Spoon has experienced challenging times as both its main competitors – Tate & Lyle Sugars and Whitworths – have been quite aggressive on price. In Australia, it remains challenging and still loss making but they were talking about an improved trajectory.
Panmure Gordon analyst Graham Jones
Primark was the undoubted star of the show, with sales rising 24% and profits rising by 55%. The largest out-performance against our forecasts was the Sugar division, but we believe this is a phasing issue. As such, we are not changing our full-year Sugar EBITA forecast, and indeed are trimming our Sugar forecast for 2014E to reflect possible price easing in Europe. Grocery sales rose by 1% to GBP1.83bn, and EBITA rose from GBP75m to GBP97m, largely reflecting the non-recurrence of restructuring costs in Australia and at Allied Bakeries. Twining Ovaltine again performed well, with tea sales in the UK and US notably strong and good production efficiencies being seen. Allied Bakeries performed well in a highly competitive market and Jordans Ryvita, AB World Foods and Westmill all had good periods. Silver Spoon saw volumes and margins hit by intensely competitive margins, but Australia now seems to be turning the corner, although the bread market remains difficult. Overall, we maintain our Grocery EBITA forecast of GBP243m for the full-year.
Investec analyst Martin Deboo
The H1 has beaten our expectations by c.4%, with the two big divisions of Primark and sugars both ahead. Ingredients very weak, after a write-down. Ingredients was the one area of miss to our forecast, with H1 profits a very low GBP2m (relative to our GBP10m) after a GBP15m provision for restructuring European dry yeasts capacity.
Jack Gorman, Davy Research
Grocery was a steady out-turn in competitive conditions. Divisional EBIT rose by 29% to GBP97m, versus our forecast of GBP103m. When the absorbed restructuring costs are excluded from last year, underlying profits look slightly ahead on a 1% revenue increase. The commentary is littered with references to competitive trading conditions, be it in bread, retail sugar, Australian bread or ACH. One note of solace was a stabilisation in Australian trading (i.e. meeting expectations).
