Associated British Food profits lifted by higher sugar prices

Associated British Foods (ABF) said today that its profits would be significantly sweetened this year by the recovering AB Sugar business.

However, the group added most of the company’s profit boost would arrive in the first half as benefits from the weak pound in its overseas businesses would fade in the second six months of the financial year.

The news sent shares in ABF down as much as 1% in early trading, with the stock currently 0.6% down on Friday’s close at 2,596p.

ABF reported that revenues and operating profits in the first half in the grocery are expected to be ahead of last year at constant currency and substantially ahead at actual exchange rates, with margins expected to make further progress.

In a trading update for the six months to 4 March, ABF forecast a £50m currency boost from the translation of overseas results but warned the full effect of sterling weakness against the US dollar on Primark’s purchases would squeeze margins in the second half as it favourable hedges ran out.

The grocery division revenues in the half are expected to be ahead of last year at constant currency and substantially better at actual exchange rates, with margins expected to make further progress. It generates almost 80% of all Twinings Ovaltine sales overseas, but the boost from the weak pound will not be as advantageous in the second half. Twinings achieved market share gains in the UK, the US, Australia and France, while Ovaltine sales showed good growth in the developing markets of Vietnam and Brazil and with successful new products in Thailand.

Margins declined at Allied Bakeries despite “strong” volumes and the new Kingsmill pack design being well received by customers and consumers. “The market remains competitive and margins have declined as a consequence,” the statement said.

Jordans and Dorset Cereals achieved growth in the UK supported by new product launches and “particularly good” growth in Australia, Belgium, the Netherlands and France. And the rate of decline in Ryvita crispbread volumes slowed with the launch of new variants and portion packs.

Profits are AB Sugar are projected to be ‘substantially’ up on last year as the second year of a global sugar deficit continued to push up prices. Increased production in Africa and further benefit from the performance improvement programme also helped increase revenues and profits I the division.

Sales at Primark are expected to be 11% ahead of last year at constant currency, driven by increased retail selling space, and 21% ahead at actual exchange rates. The UK performed well in the half with like-for-like sales 2% ahead of last year and market share increasing.

“In FY’17 we expect a strong rebound in group profits as Sugar profits recover and Primark continues a strong store roll-out program,” said Liberum consumer analyst Robert Waldschmidt.