24th Feb 2014 08:41
LONDON (Alliance News) - Primark owner Associated British Foods PLC Monday said much-lower profit from its sugar business in the first half of the year will be offset by strong 13% sales growth from its clothing retailer Primark and good performances from its grocery and ingredients divisions.
In a pre-close trading update, ABF said it expects to report adjusted operating profit for the half year ending March 1 in line with the year prior. Adjusted earnings for the first half will be "firmly" ahead of last year, it said, helped by a further reduction in the underlying tax rate.
ABF said sales at its low-cost fashion chain Primark not only drove the group's overall trading performance, but offset falling profits and sales at its ailing sugar business.
The group said Primark sales were up 13% in the first-half of the year at constant currency, and 14% ahead at actual rates, driven by 4% like-for-like sales growth and an increase in retail selling space.
In sharp contrast, the group said its sugar business is struggling to deal with unsustainably low sugar prices. It said that as a result, revenue, profit and margins from its sugar division will be substantially lower than last year.
ABF has been hard hit by a steep decline in sugar prices, as the commodity markets react to an EU regulatory change, with the end of EU sugar quotas set for 2017. As a result, ABF has lowered expectations for profits for its sugar business this year several times and now expects an even bigger decline.
"This will be reflected in AB Sugar's results, particularly in China. First half sales volumes for Spain, Illovo and China will be lower than last year," the company said in a statement.
The major sugar supplier is currently in a pricing dispute with Real Good Foods PLC, which claims AB Sugar has a "monopoly in the supply of UK beet sugar" and is imposing anti-competitive pricing. Real Good Foods said it has made a complaint to the Office of Fair Trading alleging an abuse of a dominant position by British Sugar, and if successful Associated British Foods could face a substantial fine.
ABF said revenue and operating profit in the first half from its Agriculture division will be similar to last year at both constant currency and actual rates, with lower UK feed volumes offset by growth in China, and a strong performance from in South America and Asia from AB Vista, a supplier of new generation micro-ingredients for the animal feed industry.
ABF said its Grocery business saw strong sales growth for its Twinings Ovaltine tea in the US and the UK in the first half, and its Allied Bakeries business improved volumes and margins during the period in a what it called a highly competitive UK bread market.
The group said revenue from its Grocery business in the first half is expected to be ahead of last year at constant currency, but just below at actual rates, although margins and profit will be much improved, it said.
ABF said first-half revenue from its Ingredients division is expected to be ahead of last year on a constant currency basis, but slightly lower at actual rates. It said profit from continuing operations will be well ahead of last year's break-even result, thanks to the absence of restructuring costs and early signs of improvement in yeast and bakery ingredients.
ABF said capital expenditure during the period was higher than last year, with lower expenditure in the food businesses being more than offset by higher investment at Primark, as it looks to open a total of 1.1 million square feet in new retail selling space in this financial year, having already opened 0.6 million square feet in the first-half.
The group has been focusing on building its retail presence outside of the UK, opening its first two Primark stores in France, and opening new stores in Spain, the Netherlands, Germany, Austria and Portugal, all of which it said are trading well.
The group said it intends to release its full half-year results on April 23.
Shares in ABF were trading 0.7% down in early trading Monday morning at 2,971.00 pence per share, after opening briefly higher.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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