15th Jan 2015 07:22
LONDON (Alliance News) - Associated British Foods PLC Thursday said it now expects a marginal fall in its adjusted earnings per share in the current financial year, as strong growth at its Primark retailer is more than offset by further profit declines in its sugar business and due to the strength of sterling.
The company warned that the pound is still stronger than last year in most of its major trading currencies, the dollar being a major exception, and it expects sterling's strength to knock about GBP15 million off its adjusted operating profit.
Operationally, its sugar unit is continuing to suffer due to a fall in EU and world sugar prices, and the company is expecting a "large reduction" in profit in its sugar business.
AB Foods said its revenue was up 1% in the 16 weeks to January 3, its fiscal first quarter, or 3% at constant exchange rates, driven by a 12% increase, or 15% at constant rates, at Primark.
Primark, like peers in the UK retailing sector, was hit by the unseasonably warm weather in early autumn that kept consumers out of shops packed with winter clothing ranges. However, Primark's saw strong trading over the Christmas period, AB Foods said.
It said Primark's operating profit margin was, as expected, lower than the first quarter of its previous financial year, due to a higher level of mark-downs.
AB Foods said revenue and margins were lower in its UK and Spanish sugar businesses in the quarter, hit by the decline in EU sugar prices, although it's now seeing some signs that prices are stabilising.
The sugar business has also been struggling in parts of China, with Heilongjiang province in the north east of the country proving to be the most challenging in terms of achieving beet yields that are sufficient to provide AB Foods' factories at Yi'an and BoCheng with an adequate supply of raw material at a competitive cost.
"When combined with continuing poor market prices we have now concluded that these factories will remain uneconomic for the foreseeable future and have therefore announced our intention to cease sugar operations in Heilongjiang," it said.
The company will book a loss of about GBP128 million in its first-half results from the closure of the factories, reflecting write-offs as well as one-off cash costs of GBP18 million.
"Importantly, following this action, we expect all of our remaining sugar factories in China to be cash generative, even at the current low sugar prices," it said.
AB Foods said its smaller grocery and agriculture businesses were improving, and it expects the units to report higher operating profits during this financial year as a whole.
By Steve McGrath; [email protected]; @stevemcgrath1
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
AB Foods