4th Nov 2014 10:46
LONDON (Alliance News) - Associated British Foods PLC Tuesday reported a higher pretax profit for its last financial year, despite a drop in revenue, but warned on its outlook for the year ahead, citing further heavy falls in its sugar business, limited growth in earnings per share and a marginal decline in its operating profit.
"At this early stage we expect a marginal decline in adjusted operating profit for the group but the impact on earnings will be mitigated by much lower tax and interest charges. We therefore see limited opportunity to grow adjusted earnings per share in the new financial year," the company said.
The food ingredients and retail group reported a 1% decline in its operating profit for the 52 weeks ended September 13 to GBP1.08 billion, down from GBP1.09 billion the prior year. However, pretax profit rose as finance expenses fell, and last year's results were hit by losses from the closure of its yeast extract business in China.
The owner of fashion retailer Primark posted a pretax profit of GBP1.02 billion, up from GBP868 million a year earlier, even though revenue fell to GBP12.94 billion, from GBP13.32 billion, hit by the current strength of sterling.
"Growth in retail revenue was more than offset by revenue declines in all of food businesses," Finance Director John Bason told investors in a call Tuesday.
Adjusted earnings per share rose 6% to 104.1 pence, while the group declared a 6% increase in its dividend for the year to 34.0 pence.
AB Foods missed analysts' sales consensus for the year, but slightly beat consensus for its pretax profit and earnings per share.
The group's star performer, low-cost fashion chain Primark, drove profit growth, offsetting heavy profit falls in its struggling sugar business on the back of record low sugar prices.
It said that Primark's strong trading performance included higher margins and new selling space. Sales at Primark rose 16% at actual exchange rates during the year to GBP4.95 billion, while reporting a 29% increase in operating profit to GBP662 million.
"We saw ranges sell extremely well through all seasons. Margin expansion was not driven by higher prices but in fact an unusually low level of markdown during the year," said Bason.
AB Foods has big expansion plans for the popular retail chain both at home and abroad, including expansion in France and Spain, and hopes of mirroring its success in the US,
It said it expects to open its first stores over in the US in late 2015 in Boston, with up to 10 stores by the end of 2016. It said it is mostly focused on opening its stores in popular US shopping malls, where it said there is higher customer footfalls.
"We are anticipating footfall in the [US] malls to be lower than in Europe... We don't expect to make a lot of money in the first couple of years in the US. What we want to learn is how to trade there," Chief Executive George Weston told investors.
At home, the whole of the UK high street is under pressure because of warmer weather during September and October, which big UK retailers like Next PLC and Supergroup PLC have said have held back sales of its autumn/winter ranges.
However, AB Foods' Weston said that while there has been a "weather impact" during recent weeks for sales at Primark, he is "not particularly concerned" as both profit and revenue are still growing.
"Sales and profit in the first four weeks at Primark are comfortably ahead of 10%," Weston said.
In the year ahead, AB Foods said that besides Primark expansion, its Grocery, Ingredients and Agriculture businesses are expected to make further progress. However, it warned about the prospects for its sugar business, AB Sugar, which in the year just ended posted a 56% decline in operating profit to GBP189 million. Revenue declined 22% to GBP2.08 billion.
"With the continuing fall in EU sugar prices, and volatility in the world sugar price, we expect a further large reduction in profit from AB Sugar, but this will put much of the effect of the structural changes in EU prices behind us," the company said.
Declines in EU sugar revenue is partially being offset in the UK, and more than offset in Europe and Africa thanks to Primark, it added.
AB Foods said its Grocery division made very good progress with profit and margin well ahead of last year, driven by a strong performance from its Twinings and Ovaltine brands both in the UK and overseas. It said trading also improved at ACH Foods in the US and Mexico.
Its Ingredients business delivered an adjusted operating profit of GBP41 million for the year, up from only GBP5 million the prior year, with revenue up 4% at constant currency, although it said sterling strength meant revenue at reported rates declined by 7%. Its agriculture division delivered an operating profit of GBP50 million, up 6% at actual rates and 11% at constant exchange rates.
"While most of the focus will be on the Primark profits, the achieved 8.1% Grocery margin shows a long-awaited return to health for that division," said Berenberg analyst James Targett. "Sugar is clearly very challenging, and we expect profits of under GBP100 million for 2015 as EU prices fall below EUR450 per tonne. Although rebased to more sustainable levels, we should expect volatility going forward," he added.
Shares in Associated British Foods were trading 1.2% higher Tuesday morning at 2,704.00 pence.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
AB Foods