10th Jul 2014 10:06
LONDON (Alliance News) - Associated British Foods PLC Thursday said the persistent strength of sterling continued to hit sales in the third quarter, while the growth of its retail business Primark failed to offset a huge sales decline in its struggling sugar business.
The food, ingredients and retail group posted a 3% decline in total sales at actual currency exchange rates in the third quarter, hit by the strength of the sterling, but rose 3% on a constant exchange rate basis.
In the year to date, AB Foods said sales were down 2% at actual rates, and were up 2% at constant rates.
"The likely negative impact arising from currency translation, if current exchange rates prevail, will be some GBP50 million compared with last year's result," the company said in a statement Thursday.
Despite the significant hit from the strength of the sterling, AB Foods said it now expects full year adjusted earnings per share to be ahead of last year, as a bigger profit from its retail division, grocery and ingredients businesses collectively, offset the currency hit and lower sugar prices.
AB Foods shares initially rose at the market open Thursday, but have since retraced earlier gains, currently down 2.7% at 2,920.00 pence, one of the biggest fallers in the FTSE 100.
The group's low-cost fashion chain Primark is by far its biggest profit driver, and now makes up far more of the group's overall operating profit than either its sugar business or its grocery and ingredients business.
Primark sales in the third quarter were up 19% at actual exchange rates, and are up 16% in the year to date, boosted by new store openings, AB Foods said. However the company's sugar business saw sales decline 26% at actual rates in the quarter, and have fallen 23% in the year to date.
AB Foods currently operates Primark stores in nine countries in Western Europe, most recently opening in France, where it has recently opened five stores.
The group is hoping to mirror its Primark success in the US, with plans to open stores in the northeast, with a 70,000 square foot Primark store in Boston towards the end of 2015. Earlier this year, the group said it was in negotiations to open further shores in the US northeast through to the middle of 2016. It said the US stores will be supported by warehousing in the region.
"We have a very strong pipeline of new stores in Europe extending over a number of years. With our current phasing of store openings, we now expect a net increase in retail selling space in this financial year of 1.2 million square feet," AB Foods said in its statement.
Last month, a person familiar with the situation told Alliance news that the company's Primark business was close to signing a deal to buy the Pavilion shopping centre in Birmingham, which it will convert into one of the country's biggest Primark stores yet. AB Foods provided no update on the potential deal Thursday.
The group's sugar business has been hit hard by the sharp decline in world sugar prices this year, ahead of EU regulatory change, with the end of EU sugar quotas set for 2017.
Hefty falls in sugar revenue have resulted from the substantially lower sugar prices, weaker EU sales volumes, particularly in Spain, and lower sugar production in north China.
AB Foods said that early customer negotiations have commenced for the 2015 financial year UK contract round, and whilst prices remain weak, it has seen signs of stabilisation, albeit at lower prices than hoped.
"In response to the substantial profit decline in our sugar businesses, and in addition to the continuous improvement programme that is delivering cost reductions across the AB Sugar group, we are planning to undertake a further overhead reduction exercise," the company said.
"We expect to take a one-time charge of some GBP20 million in this year's adjusted operating profit to provide for the associated costs," it added.
Grocery sales were down 12% at actual exchange rates in the quarter, largely due to lower Silver Spoon sugar sales, while agriculture sales were down 11%, and ingredients sales down 5%. Sales across all those businesses also were down in the year to date, although AB Foods said its grocery and ingredients divisions have been benefiting from restructuring initiatives.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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