Associated British Foods plc reported a trading update for the 40 weeks to 20 June 2015. Group revenue for the 40 weeks ended 20 June 2015 was 2% ahead of the same period last year at constant currency, and was level at actual exchange rates.
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During the current financial year, against a basket of currencies, the euro has weakened significantly and the US dollar and sterling have both strengthened.
Movements in currency exchange rates in the current financial year have primarily affected the translation of overseas results into sterling, the full year impact of which is still expected to be in the order of £25m if current rates persist.
Company's earnings expectation for this financial year is unchanged and reflects a modest decline in adjusted earnings per share for the group for the full year.
The performance of company's grocery businesses remains on track. Twinings Ovaltine has made further profit progress since the half year. The meat business at George Weston Foods in Australia has improved as expected with lower raw material cost, higher volumes and much lower factory production costs.
Allied Bakeries is successfully increasing its volumes and is rebuilding Kingsmill's presence in Tesco, although its margins remain under pressure.
The UK campaign in 2014/15 produced 1.45 million tonnes of sugar and benefited from a large crop, excellent factory performances and good extraction rates. The new crop for the 2015/16 season has made good progress but, with a reduction in the area under cultivation in excess of 20%, sugar production is expected to be closer to 1 million tonnes leading to a fall in company's quota stock levels.
Quota stocks are now reducing across the EU and with lower production forecasts generally across the region, further reduction is expected next year.
As quota sugar stocks reduce, EU sugar prices, as reported by the European Commission, have shown some signs of recovery, albeit moderated by continued low world sugar prices.
Delivered beet costs for the 2015/16 campaign will be some 20% lower than the current year. Negotiations for the 2016/17 UK beet price are now complete which will see a further substantial cost reduction.
A decline in Illovo's operating profit is expected for their financial year ending 31 March 2016. Continued drought during the growing season in South Africa has led to a reduction in production forecasts and export markets continue to be very challenging. The company continues to focus on domestic and regional sales to mitigate the effect of lower world and EU prices.
In China there has been a recovery in market prices and profitability has improved as a result. Negotiations to sell the BoCheng beet sugar factory in Heilongjiang, that was closed earlier this year, were concluded successfully at the end of May and completion is expected soon.
As a result, the cost of ceasing operations in this region has reduced by £17m from the expectation at the half year, to £99m, almost all of which is a non-cash charge.
Sales on a like-for-like basis in the last 16 weeks were in line with last year's very strong comparatives and continue to be held back by the impact that opening new stores in the Netherlands and Germany has had on existing stores in the region. Spain, Portugal and Ireland all performed very strongly and the UK continued to deliver a positive like-for-like performance.
Company's stores in France, which are excluded from the like-for-like measure, have also continued to trade very strongly. ■
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