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Associated British Foods (ABF) has issued a pre-close trading update for the year to 15 September, noting that strong profit performance from Primark, grocery and other divisions will be hampered by lower EU sugar prices.
ABF said its full year outlook for the group is unchanged, with progress expected in adjusted operating profits and adjusted earnings per share.
It said strong profit performances from Primark, grocery, agriculture and ingredients are expected to “more than offset” the adverse effect of lower EU sugar prices.
However, with two thirds of the group’s operating profit earned outside the UK, the strengthening of sterling against most of its trading currencies, other than the euro, will result in a loss on translation this year of some £20m.
US dollar weakness against the euro has had a favourable transactional effect on Primark’s largely dollar denominated purchases, particularly in the second half. The movement in sterling across the year resulted in the expected negative transactional effect in the first half moving to a favourable effect in the second half.
Grocery revenues are expected to be ahead of last year and adjusted operating profit to be well ahead, driven by growth in Twinings Ovaltine, improved margin at George Weston Foods and the first year of contribution from Acetum.
Ovaltine revenue growth was especially strong, led by the brand’s largest markets: Thailand where growth was achieved in both ready-to-drink and powder and Switzerland, due to the success of new product launches and increased distribution.
At Allied Bakeries, some progress has been made to reduce the operating loss through cost reduction programmes and price increases. Jordans has continued to drive international expansion, delivering strong revenue growth performance in Australia, New Zealand, Canada and Brazil.
At AB World Foods, Patak’s continued to deliver market share growth following the launch of paste pots, endorsed by Jamie Oliver, while Blue Dragon extended international sales growth in Canada, Scandinavia and Australia.
While, Acetum, the Modena-based balsamic vinegar business acquired last October, is “progressing well”.
Outside of grocery, AB Sugar’s revenue and adjusted operating profit will be well down on last year due primarily to significantly lower EU prices adversely affecting its UK and Spanish businesses.
In the UK, sugar production increased considerably to 1.37 million tonnes, but next year’s production is expected to be much lower, driven by reduced beet yields as a consequence of late drilling, due to wet spring weather followed by the unusually dry summer.
AB Agri revenues will be well ahead of last year, with growth in all businesses, with a consequent increase in operating profit, while Ingredients’ revenues will be ahead of last year and operating profit will again be well ahead with a further increase in margin.
Sales at its key Primark clothing retail division for the full year are expected to be 5.5% ahead of last year at constant currency, driven by increased selling space offset by a 2% decline in like-for-like sales. At actual exchange rates sales are expected to be 6% ahead.
Primark has performed well in the UK, where full year sales are expected to be 6% ahead of last year, and its share of the clothing market has increased significantly. 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.
Operating margin in the first half was 9.8%, down from 10% in the same period last year, due to the adverse effect of the US dollar exchange rate on purchases. As expected, margin in the second half will be well ahead of the first half and last year driven by the benefit of the weakening of the US dollar exchange rate on purchases and by better buying.
In the next financial year the group is planning over 1 million sq ft of additional selling space, with more than 0.5m sq ft being added in the first half. Germany, France, Spain and the UK will see the most space added and overall we will open 14 new stores.
Morning update
Retail footfall fell back in August as inflation and rising prices kept shoppers away from the high street, according to the British Retail Consortium/Springboard footfall and vacancies monitor.
During the four weeks between 29 July and 25 August footfall fell by 1.6% on the previous year, a sharper decline than seen in July, when a fall of 0.8% was recorded.
The BRC/Springboard said that with food inflation rising again shoppers are seeing the amount left over for non-essential purchases being squeezed, that in turn reduces the number of shopping trips made, which added to the long-term downward trend of fewer trips to physical shopping locations.
Three months of growth came to an end in August for high streets, which recorded a decline of 2%.
Retail parks performed strongly for all but three regions: North & Yorkshire, East Midlands and London.
Shopping centres continued to see year on year falls, but at a decelerated rate as footfall fell by 2.4%, less of a decline than July’s 3.4% fall.
Helen Dickinson chief exec of the British Retail Consortium said: “British high streets experienced a quiet August this year as the continued squeeze on wages kept consumers away from the shops.
“With fewer shoppers visiting the high street and a difficult overall trading environment the pressures is increasing on retailers as rising public policy costs continue to bite. The Government must take action now and commit to a two year freeze on business rates to help reduce the pressure of this disproportionate tax on retailers and allow for a fundamental reform of the business taxation system.”
Diane Wehrle, Springboard Marketing and Insights Director added: “The drop in footfall of -1.6% in August is the worst result since April.
“Given the sweltering temperatures during what has been the hottest summer on record, it is not surprising that visits to shopping destinations declined further as consumers made the most of the weather elsewhere.”
On the markets this morning, the FTSE 100 has started the week down 0.1% to 7,273.3pts.
ABF has dropped 3.7% to 2,187p in early trading following its pre-close update this morning. Other fallers include McColl’s (MCLS), down 2.2% to 155p, PayPoint (PAY), down 1.7% to 914p and Devro (DVO), down 1.2% to 196.6p.
Early risers include Morrisons (MRW) ahead of its first half results on Thursday, up 1.3% to 265.3p, Nichols (NICL), up 1.1% to 1,499.5p and Greencore (GNC), up 1% to 177.6p.
This week in the City
The City is beginning to kick back into gear this week after the summer lull, with a busy Thursday seeing half year results from both Morrisons and Waitrose.
Morrisons and The John Lewis Partnership will announced their first half results on Thursday. The former has had a strong year under the leadership of David Potts and is expected to rise its investor dividend payment as it posts stronger sales and profits. The John Lewis Group has had a more difficult period, with profits expected to be down once more.
Tomorrow brings first half results from Tesco meat supplier Hilton Food Group (HFG), while Thursday also sees the full year results of pub group HD Wetherspoon.
Internationally, PepsiCo (PEP) will issue its third quarter earnings update later today, with Ocado’s US grocery partner Kroger (KR) will update the market on its first half performance on Thursday.
In economic news, the UK official monthly balance of trade and July GDP figures later this morning as well as manufacturing production numbers.
The Bank of England will give its monthly interest rate decision on Thursday, with rates widely expected to stay unchanged after a 0.25% rise last month.
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