Trading outlook
For the half year, other than the expected reduction in Sugar revenue, sales growth will be delivered by all of our businesses. We expect adjusted earnings per share to be broadly in line with the same period last year, with lower net financial expenses offsetting a small reduction in adjusted operating profit.
For the full year, our outlook for the group is unchanged with adjusted operating profit and adjusted earnings per share for the year expected to be in line with last year.
Cashflow and funding
We expect a cash outflow in the first half of the year, consistent with the pattern seen in previous years, driven by the seasonal increase in working capital in our European sugar businesses following the substantial completion of processing campaigns. Capital expenditure will be at the same level as last year. Net cash is expected to be some £300m at the half year, compared to £123m at the first half last year.
Grocery
Revenue and operating profit in the first half are expected to be ahead of last year on an underlying basis, with a further improvement in margin. Including a £12m one-time cost in respect of supply chain consolidation at Twinings Ovaltine, adjusted operating profit for the first half will be in line with last year.
Twinings Ovaltine revenues are ahead of last year, with sales in Australia and the UK benefiting from the continued success of the Cold Infuse teas range launched last summer. Ovaltine achieved good growth in the important market of Switzerland, although sales in Thailand were lower than an exceptionally strong first half last year. We have now successfully completed the transfer of tea production from Jinqiao, China to our existing site in Swarzedz, Poland.
Jordans and Ryvita achieved good sales growth in a number of international markets, while sales of Ryvita Thins grew in the UK, although profit declined due to increased raw material costs. We will benefit from a full period of ownership of Acetum, which was acquired in October 2017. Margins have improved with grape must prices lower than the exceptionally high level last year following a poor grape harvest in 2017.
Work continues to reduce the operating losses at Allied Bakeries. Some bread sales volume will be lost next year as a result of recent customer discussions on pricing.
At ACH in the US, sales of Mazola corn oil increased through the continued Heart Healthy advertising campaign while margins strengthened due to lower oil commodity costs.
Sales increased at George Weston Foods in Australia and margins improved significantly.
Sugar
AB Sugar revenue from continuing operations is expected to be lower than last year in the first half, in line with previous guidance, with lower EU contracted sugar prices impacting our UK and Spanish businesses. As a result, in the first half AB Sugar will record a marginal loss, but operating profit for the full year remains in line with our expectations.
Agriculture
Revenue in the first half will be ahead of last year with growth of UK compound feed sales through increased volumes and pricing due to higher commodity costs.
The closure of the Vivergo bioethanol plant last autumn reduced the availability of co-products, of which Trident Feeds was the sole marketer, with a consequent reduction in operating profit for AB Agri.
AB Vista maintained its position as a leader in phytase in the global feed enzyme market, although margins were held back by increased competition, particularly in the Americas.
Ingredients
Revenues in the first half are expected to be ahead of last year, with progress in operating profit.
ABF Ingredients continued to increase revenue in the first half driven by sales of protein crisps, with further share gains in the expanding US market.
Retail
Sales at Primark are expected to be 4% ahead of last year in the first half, at both constant currency and actual exchange rates, driven by increased retail selling space partially offset by a 2% decline in like-for-like sales. With a much higher margin, profit is expected to be well ahead of the same period last year. Early trading of the new spring/summer range has been encouraging.
The UK continued to perform well and we substantially increased our share of the total clothing, footwear and accessories market, with sales 2% ahead of last year. Cumulative like-for-like sales have improved since the January trading update. The effect of low footfall in November was offset by good trading in all other months, and like-for-like sales are expected to be level with last year in the first half.
Sales in the Eurozone are expected to be 5% ahead of last year, with particularly strong sales growth in Spain, France, Italy and Belgium. Like-for-like sales in the Eurozone are expected to show a decline of 3%. In Germany we have strengthened management and plan focused marketing to address trading which continues to be difficult. Preparations are underway to reduce selling space at a small number of German stores in order to optimise their cost base.
Our business in the US continues to perform strongly, driven by excellent trading at our recently opened Brooklyn store combined with like-for-like sales growth. This, coupled with the benefit to store profitability arising from the reduction in selling space at Freehold and Danbury last year, has much reduced the US operating loss.
Our first store in Slovenia will open in the summer in Ljubljana and, following the signing of the lease for our first store in Poland, we have now signed the lease for our first store in the Czech Republic, which is in the city centre of Prague.