ABF interim results: George Weston ‘disappointing’

Posted by Nicole Eckersley on 28th April 2011

Shares in Associated British Foods tumbled in morning trade yesterday after the George Weston and Don/KR Castlemaine parent company cut its full-year profit outlook, despite an improved first-half performance from its sugar and grocery businesses.

The company, which had predicted a rise in full-year earnings, said that price competition and higher cotton prices were hitting its Primark discount fashion business, and that profits are “now expected to be similar to last year’s”.

The group revealed that first-half operating profit rose 6% to GBP356m (US$589.9m) while revenues incresed 9% to GBP5.21bn in the six months to 5 March. However, profit before tax remained level at GBP319m and basic earnings per share were down 3% to 30.6p. ABF’s sugar division booked a significant jump in profit, which was up 27% to GBP108m, driven by the performance of its Chinese and Spanish sugar interests. The company’s UK grocery unit saw profit rise 17% to GBP111m on sales gains of 8%.

Commenting on the result, CEO George Weston hailed the company’s “good growth” during the period.

“The breadth, diversity and resilience of our businesses have enabled the group to deliver good growth. We have made further substantial capital investment for the longer-term development of the group,” he said.

The company’s Australian businesses offered mixed results, with Twinings doing well with green tea and infusions, but with the company saying that George Weston Food’s results ‘disappointed’, and cited competition between Coles and Woolworths as a downward force on profits.

“The trading result at George Weston Foods was significantly below last year. Baking maintained its market share in a very difficult trading environment with increasing levels of price competition between the two major retailers impacting on revenue and margin. Recovery of wheat price increases in this competitive environment has been difficult although some progress was made. The core Tip Top range was relaunched with improvements to recipes being achieved in a number of products through the inclusion of bread improvers supplied by AB Mauri. The Abbotts Village Bakery brand, which was launched last year, continued to grow and the New Zealand bakery operation is on track to deliver a third successive year of significant sales and market share growth,” said the company.

Weston also acknowledged the effect of the Queensland floods and the Christchurch earthquake on the company’s employees.

“I have been impressed by the resilience of many of our staff who, in the early part of the year, faced the devastating effects of the Queensland floods and the earthquake in New Zealand. Thankfully our
employees sustained no serious injuries but our flour mill in Moorooka, Australia was severely damaged and our operations in New Zealand were disrupted. I would like to thank those affected by these disasters for their stalwart efforts to keep the business going under extremely difficult circumstances,” he said.

The company’s Australian meat business, Don/KR Castlemaine, was also in upheaval over the period.

“The meat business was also impacted by retailer price competition with a higher proportion of sales being subject to promotional discounts. Commissioning of the new Castlemaine meat factory is progressing satisfactorily with the transfer of production from Altona scheduled to complete by the financial year end. The recent floods in Queensland severely damaged our flour mill at Moorooka. Alternative sources of supply to the Queensland market were quickly secured and the clean-up process is expected to be complete by the end of June. The group’s central costs include provision for the cost of restoring the site to full operation.”

Shares in the group fell 6.79% to 974 pence at 10:37 BST.