12th Jan 2017 10:49
LONDON (Alliance News) - Associated British Foods PLC on Thursday reported robust growth in sales in the 16 weeks ended January 7, helped by the devaluation of sterling since the UK's vote to leave the European Union.
But shares in the company were trading down 3.9% at 2,594.00 pence on Thursday, the worst performer in the FTSE 100, as it confirmed that retail margin will continue to decline due to the strength of the dollar.
AB Foods - which owns clothing retailer Primark as well as sugar, grocery and agriculture businesses - said group revenue in the recent 16 weeks rose by 22% year-on-year dressed by the weak pound, while revenue at constant currency rose by 10%.
Within the retail arm, AB Foods said Primark sales increased by 22% in the period and by 11% at constant currency, driven by a 12% increase retail selling space.
In the UK, AB Foods said like-for-like sales were "good" as market share increased due the "strength" of Primark's consumer offering. However, it said the retailer's like-for-like sales were held back by declines in Germany and the Netherlands due to a "rapid increase" in selling space.
Despite this, new Primark stores traded strongly, the company said, adding that its US business continued to develop.
AB Foods added that Primark's sales stock was managed well in the period, but that its operating margin will decline, as predicted, as the year progresses due to strength of the dollar against the weak pound on input costs. It noted that foreign exchange contracts are now in place for most of the remaining purchases for this financial year.
Within the sugar business, revenue grew by 38% and by 22% at constant currency, with higher sugar prices, increased production in Africa and a benefit from its performance improvement programme delivering a "substantial" increase in profit.
AB Foods noted that world sugar prices are much higher this year than last, and that a tightening of EU stock levels has strengthened domestic prices across the region and in Africa, while higher world prices and the strong dollar have resulted in higher domestic and regional prices.
In the financial 2017 year to September, sales contracts at higher prices, lower sugar beet costs and a weaker sterling-to-euro exchange rate mean British Sugar's operating result will "improve substantially", AB Foods said.
The sugar businesses in Spain and China also will deliver improved profits, the company said, thanks to strengthening customer demand and higher prices.
Meanwhile in the smaller grocery and agriculture divisions, AB Foods said it also made progress.
Within grocery, the Twinings tea brand continued to achieve strong sales, while malted drink Ovaltine performed well in Asia. Margins at George Weston Foods in Australia were much improved, but while volumes at Allied Bakeries remained strong, pricing and margins remain challenging, the company said.
Within agriculture, revenue was higher than last year, with substantial improvements in margins.
"Our outlook is unchanged with progress expected in adjusted operating profit and adjusted earnings for the group for the full year," AB Foods said in a statement.
By Karolina Kaminska; [email protected]; @KarolinaAllNews
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