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Stocks in Focus: Associated British Foods

This week I will be looking at Associated British Foods (ABF), the British multinational food processing and retail company. The most recent trading statement, released in April, highlighted the recent performance of the groups divisions. Separately the company also announced a joint venture with Wilmar International subsidiary; Yihai Kerry Arawana Holdings to merge their Chinese yeast and bakery operations.

April’s trading statement announced difficulties within the sugar industry affecting it’s subsidiary AB Sugar, however the outlook from it’s portfolio of brands, including Twinings, Ryvita and Pataks, provided a more reassuring position. Primark, a growing proportion of the company’s revenue, reported profit growth due to an increase in selling space and improved margins despite weaker like-for-like sales. Nevertheless like-for-like sales can be misleading since the Easter weekend could fall in either Q1 or Q2 year-on-year. Additionally the weather can play a significant role in driving customers to the high street.

The aforementioned joint venture will tie up the Chinese operations of ABF’s subsidiary AB Mauri and utilise Yihai’s market expertise and distribution channels. This will give the company scale and further reach across China in the yeast and bakery ingredients sector. This tie up comes amid struggles in ABF’s UK bakery arm, Allied Bakeries, which is facing a challenging environment, owing to low bread prices and stiff competition. The company also announced a change in management of Allied Bakeries whereby current managing director Jon Jenkins will step down and be replaced by two current directors Liam McNamara and Nick Law.

ABF owns a diverse group of subsidiaries that continue to compliment each other, however the company must show it can turn around the struggling parts whilst continuing investment in the growing divisions. Investors will look for further success in ABF’s cost reduction programme and growth in like-for-like sales across all divisions.

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