10th Sep 2018 12:38
LONDON (Alliance News) - Associated British Foods PLC on Monday was the worst performer of the FTSE100 Index as it guided for a drop in Sugar revenue and profit on lower EU prices.
Shares in the company were trading 1.2% lower at 2,243.00 pence each at midday. Earlier in the day they had been trading as low as 2,186.00p, down 4.2%.
Despite the expected drop in Sugar revenue, AB Foods said that its outlook for the nearly-ended financial year remains unchanged, with progress expected in adjusted operating profit and adjusted earnings per share.
For the year ending September 15, the Primark clothing chain owner said it generated a "strong performance" from its Retail, Grocery, Agriculture and Ingredients businesses which offset the negative effects of lower sugar prices.
The company explained that its Sugar division revenue and adjusted profit will be "well down" on last year, mainly due to the lower prices issues.
"The global supply of sugar has moved into surplus and the world market sugar price has reduced," AB Foods said.
It added: "The EU sugar regime ended in October 2017, removing sales quotas and constraints on exports. As a result of substantially higher EU sugar production in 2017/18, through increased crop area and beet yields, EU prices have fallen faster and more significantly than expected and are now more closely related to these lower world market prices."
Furthermore, AB Foods said it expects to incur a GBP20 million loss to due foreign exchange movements, with two thirds of the group's operating profit earned outside the UK.
"The company’s latest trading update painted a mixed picture for business outlook and while trading at its core Primark division was 5.5% higher at constant currency, the company remains vulnerable to global currency fluctuations due to earning two-thirds of its profits outside of the UK," Artjom Hatsaturjants, research analyst at Accendo Markets, said.
Looking at its retail division, the company said it expects Primark sales up 5.5% on the previous year at constant currency, on the back of increased selling space offset by a 2% decline in like-for-like sales. At actual exchange rates sales are expected to be 6% higher than last year.
"Primark has performed well in the UK, where full year sales are expected to be 6% ahead of last year, and our share of the clothing market has increased significantly," AB Foods said.
It added: "Like-for-like growth for the full year is expected to be 1.5% driven by a strong first half and a second half performance in line with an exceptionally strong second-half last year."
The company said that on a like-for-like basis, Primark sales in Northern Europe were "held back" by the negative weather which "led to difficult retail conditions" but were still "well ahead of last year driven by increased selling space".
During the year, the company opened 15 new Primark stores. It is now trading in 360 stores across 11 countries.
For the new financial year starting September 15, the company is planning to open over 1 million square feet of additional selling space particularly in Germany, France, Spain and the UK. In 2019, it will also open its first store in Slovenia, "taking Primark to its twelfth country".
In Grocery, Agriculture and Ingredients businesses, annual revenue is expected to be "ahead of last year", AB Foods added.
Grocery's profit has been driven by growth in Twinings Ovaltine, which delivered an especially strong growth, AB Foods said.
"The Twinings brand benefited from new launches in the herbal tea segment in the UK, USA, Australia and Italy," the company explained.
Ingredients' operating profit will be "well ahead" of the previous year with a further increase in margin, the company said.
"With such a wide variety of businesses under its umbrella, AB Foods is quite hard to compare with other companies and to value. While the deteriorating prospects for the sugar business are a concern the other parts of the group are mostly performing well and prospects for Primark in particular are good," Ian Forrest, investment research analyst at The Share Centre, said.
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