Associated British Foods plc Ordinary 5,15/22p Shares (ABF)

Company overview

The Group is principally a processing and food manufacturing company, as well as operating clothing retailer Primark in the UK and the Rep of Ireland. Sugar is a key commodity for the group (given its ownership of British Sugar) and branded products under manufacture include Allinsons, Kingsmill, Twinings, Ovaltine, Mazola, Silver Spoon and Ryvita.

HL Update (10 July 2008)

The group’s recent trading update (10July08) saw trading remaining much the same as at the half year announcement back in mid April. Weakness in the company’s sugar business continues to be more than offset via strength in the group’s discount retail, agricultural and grocery ingredients businesses. Although like-for-like sales at Primark have proved more challenging – management highlighted poor weather in April – store numbers continue to be expanded. A total of 179 stores are now in operation, with eight stores open in Spain. Both the agricultural and grocery businesses continued to increase revenues, with the grocery division continuing to successfully pass on the higher cost of food ingredients to consumers. As for the sugar division, revenues have been boosted via the group’s move into China, although profits remain pressured via the impact of European Union reform. On balance, market consensus opinion remains neutral in tone.

HL Comment (22 April 2008)

AB Foods is one of those companies which has quietly been making progress over recent years, but which has generally gone unnoticed by the wider investment community. While other food manufacturing companies were making headlines regarding tough sales and restructuring measures, AB Foods was conservatively expanding its food empire with bolt-on acquisitions such as Ovaltine and making steady progress with sales and profits. Only the relatively recent growing success of the group’s discount clothing store Primark, appears to have brought it to the wider attention of investors.

The group’s recent half year results (22April08) saw weakness in the company’s sugar business being more than offset via strength in the group’s discount retail, agricultural and grocery ingredients businesses. Pre-tax profits came in at the higher end of analysts’ expectations (+5pc to £282m), whilst revenues grew by 15pc to £3.71 billion. Profits from the group’s sugar business were sharply lower (-33pc) due not only to the anticipated negative impact of EU reforms, but also as a result of adverse weather conditions. Meanwhile, the group’s discount retail business Primark continued to expand both its UK and overseas store numbers, whilst sales at existing stores also improved (+4pc like-for-like). Elsewhere in the group, agricultural animal feed services made good progress as did the grocery business as rising bread prices have successfully been passed onto consumers.

Acting for negative investor concerns, the group continues to be buffeted by a combination of volatile energy and commodity prices, along with the impact that these are having on consumer demand. Furthermore, whilst broad sales progress has overall seen profits progress achieved, the group’s profit margin was under pressure given such volatile cost inputs. On the positive, Primark continues to expand both in the UK and overseas, the sugar business has been expanded into growth arenas such as Africa and China and management cost control remains stringent. On balance, market consensus opinion is currently neutral in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
15-09-2007	6,800.00	508.00	46.70	15.00	3.70	4.00	19.50	2.50
16-09-2006	5,996.00	419.00	38.10	16.40	2.70	6.00	18.75	2.20
17-09-2005	5,622.00	527.00	48.00	17.30	n/a	n/a	18.00	2.20
18-09-2004*	5,165.00	494.00	n/a	n/a	n/a	n/a	16.40	2.50
13-09-2003*	4,909.00	448.00	n/a	n/a	n/a	n/a	14.60	2.70

* Prior to 17th September 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).