8th Sep 2014 09:59
LONDON (Alliance News) - Associated British Foods PLC Monday reiterated its guidance for earnings per share to be substantially higher this year, with strong operating profit from its Primark and Grocery arms and an improvement in its Ingredients business.
But it saw its shares drop to the bottom of the FTSE 100 amid concerns the poor performance of its Sugar business may offset the positive showings elsewhere.
Shares in the company were rooted to the bottom of the FTSE 100 in mid-morning trade on Monday, down 4.5% to 2,779 pence.
The group said it expects sales for its Primark discount clothing retail arm to be 17% ahead of last year in the twelve months to 13 September on a constant currency basis and up 16% at actual exchange rates. It said the rise was driven by an increase in retail selling space over the period, like-for-like sales growth expected to be 4.5% ahead of last year and superior sales densities in its new stores, meaning sales per square foot.
It said the strong like-for-like sales for Primark in the year were driven by its autumn/winter and spring-summer ranges, with Christmas sales strong, and sales boosted as well by the warm weather in the third quarter, particularly in the spring and early summer period.
In the financial year, Primark opened 1.4 million square feet of selling space in 28 new stores and closed 7 stores, mainly where larger and better-located real estate became available in a city. Following the announcement in April of its plans to enter the northeast US market with the opening of a store in Boston, Massachusetts, due to open in late 2015, the group said it was in negotiations to secure further US northeast-based stores with plans to be operating from ten sites by late 2016.
The group's Grocery business is set to show strong growth in the year, AB Foods said, with its George Weston Foods in Australia, ACH Foods in the US, and Twinings Ovaltine business all showing stronger performances year-on-year. It said revenue from the unit is set to be broadly in line with last year at constant currency but will be impacted by the strength of sterling on the translation of its overseas results.
AB Foods expects to take a total hit of GBP50 million to its results across all divisions due to the strength of sterling and the impact of translating overseas results into the currency.
The impact of sterling strength was particularly stark in the company's AB Sugar business, which once again weighed on its results. Revenue and operating profit are set to be substantially lower year-on-year on the back of falling European sugar prices, lower volumes from north China, and a currency translation impact on the unit's operating profit to the tune of around GBP20 million, AB Foods said.
British Sugar produced a total of 1.3 million tonnes of sugar this year, compared to 1.2 million last year, with good growing conditions extending into the mild winter period, resulting in a higher beet yield and sugar content than the year before. AB Foods said the current crop for the 2014/15 campaign has made good progress and said early indications suggest it could be well ahead of production levels for last year.
The beet price payable to growers for the current crop, agreed in summer 2013, represented a substantial rise on the price for this year, AB Foods said, with an increased cost to British Sugar of GBP30 million. Negotiations have now started for the 2015/16 season and has been concluded with a cut of 20% on the year before.
AB Foods said the global sugar price is continuing to sit at an "unsustainably low" level of an average of 17 cents, well below the average cost of production. For the European market, prices were driven lower by competition among producers trying to position for growth in new markets ahead of the removal of quotas in 2017, along with a higher-than-normal quota stock level across Europe due to exceptional measures taken by the European Commission in the prior year, AB Foods said.
AB Foods said contract negotiations were ongoing with EU customers for the 2014/15 marketing year, with significantly weaker selling prices than the current year being realised. In addition, the AB Sugar business is to take a further GBP20 million charge on its operating profit for the year to provide for restructuring costs, AB Foods said, noting this had been previously announced.
Its Ingredients business is set to see revenues ahead of last year on a constant currency basis, but at actual rates, revenue is expected to be down. AB Foods said its AB Mauri business did manage to build on its improved performance in the first half with a further recovery in the second. It said the unit made progress in all regions in both its yeast and bakery ingredients businesses.
The ABF Ingredients business saw growth in enzymes and said the next phase of development for its Finland facility is under way.
AB Foods said it saw solid performance in its AB Agri arm, with cash margins on UK feed maintained over the year and growth for the unit driven by higher margin businesses. It said it saw strong growth for its AB Vista business, driven by the success of phytase feed enzyme Quantum Blue, in particular in Latin America and the Middle East, but also in the European Union after it was given approval by the European Food Safety Authority.
The group will release its full-year results for the 52 weeks to September 13 on November 4.
By Sam Unsted; [email protected]; @SamUAtAlliance
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