Primark owner AB Foods raises full-year guidance after strong trading year

Faith Castro
September 12, 2017

AB Foods said that since upping profit guidance in July, Primark had enjoyed a period of even lower markdowns, so that adjusted operating profit for the group will be well ahead of a year ago.

The group said the Brexit-induced fall in the pound would see it benefit to the tune of £85m this year, although it again noted that the British currency's decline against the dollar has led to higher import costs at Primark, putting some pressure on its first half profit margin.

The lower markdowns and margin mitigation mean that the business now expects the full year margin to be improved on the first half performance of 10%, which had been adversely affected by sterling's relative weakness to the USA dollar.

Profit margins at Primark shrank to 10% from 11.7% as the weak pound increased dollar input costs.

ABF shares were down 1.33% to change hands at 3,234 pence.

Looking ahead to 2017/18, the latest production estimate was given as 1.4m tonnes with European Union sugar prices expected to be below those achieved in the current year, while the profit impact of this is expected to be somewhat mitigated by the higher production volumes and the benefit of euro strength against sterling on euro denominated sales.

The UK had put in a particularly strong performance in the year to September 2017, ABF said, with sales up 10% and a strong increase in market share.

However, they were down 2.8 percent at 3,173 pence at 1048 GMT, reflecting some concern over competition and cost pressures in the United Kingdom bread market.

A reduction in stocks, together with the abolition of sugar quota and export restrictions from October this year, meant that the contracted area for 2017-18 had been increased by a third.

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The crop is developing well, following recent favourable rainfall and temperatures, and the latest sugar production estimate for 2017/18 is in excess of 1.4 million tonnes. Contributing to this are significantly lower sugar stocks and tight management during the year. This is 13.74% from the last close price.

Net cash at the end of the year is expected to be £650m, compared to net debt of £315m in the previous year.

In analysts note sent to investors on 11 September, Associated British Foods PLC (LON:ABF) stock "Buy" was maintained at Liberum Capital.

"Next year we would expect no material translation benefit at current exchange rates".

Capital expenditure will be higher than past year driven by a higher level of investment by Primark across all its countries of operation.

ABF has also announced that it's set to acquire Acetum S.p.A., one of Europe's leading producers of balsamic vinegar and other products.

AB Foods regards the acquisition as an opportunity to broaden its global presence in speciality foods, developing it alongside its Patak's, Blue Dragon, Jordans and Dorset Cereals businesses.

Acetum exported to over 60 countries worldwide and generating net sales of €103m in 2016.

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