Associated British Foods Profit Hit By Strong Sterling, Tough Sugar Business -- Update
November 03 2015 - 9:48AM
Dow Jones News
By Maria Kunle and Razak Musah Baba
LONDON-- Associated British Foods PLC, the agricultural products
supplier that owns the Primark fast-fashion brand, on Tuesday
reported a 30% drop in fiscal 2015 profit as the strength of
sterling and a tough year at its sugar business hurt
performance.
ABF said pretax profit fell to GBP717 million ($1.11 billion) in
the 52 weeks ended Sept. 12 from GBP1.02 billion in the previous
fiscal year, on a 1.1% decline in revenue to GBP12.80 billion.
ABF said its underlying performance was less weak. Stripping out
exceptional items and other costs, pretax profit fell 7.2% to
GBP1.03 billion from GBP1.11 billion.
"The good underlying trading achieved by our businesses in 2015
is expected to continue," Chairman Charles Sinclair said. "We
intend to maintain investment in expansion opportunities, most
notably for Primark." The fashion chain, popular in Europe, in
September opened its first U.S. store, in Boston. The opening came
too late to be reflected in fiscal 2015 results.
Primark plans to open its second U.S. store Nov. 25 at the King
of Prussia mall near Philadelphia, and it plans seven other store
openings in the Northeast by the end of 2016. ABF offered no new
details on those locations Tuesday.
The company said it forecasts a turnaround at its sugar unit.
"After three years of large profit declines for AB Sugar, we expect
greater stability in profit next year ahead of the EU quota removal
in 2017," Mr. Sinclair said in a statement. The current European
Union production quota on sugar beets is due to end Sept. 30,
2017.
Analysts from Liberum Capital said they agreed with the outlook.
"We expect industry consolidation, lower beet prices and further
costs savings will boost sugar profits" from fiscal 2016, they said
in a report on Tuesday.
But volatile currency markets could still weigh on the group's
earnings, notably at Primark and British Sugar, Mr. Sinclair said.
"At this early stage we expect the currency pressures to lead to a
modest decline in adjusted operating profit and adjusted earnings
for the group for the coming year," he said.
Currency movements will significantly offset the benefits of
lower beet costs and potential recovery in EU prices in 2016,
Barclays analysts wrote. They said they expect ABF to turn in "a
modest decline in adjusted operating profit and adjusted earnings
for the group for the coming year."
Bernstein analysts also said ABF should expect "two consecutive
years of flat or negative earnings per share growth," so 2016
should "cool the enthusiasm" of investors. They "will have to look
further out for strong growth in 2017 and beyond," Bernstein
said.
Other analysts take a brighter view of ABF's future, noting the
growing margins of the Primark division, whose retail space ABF
plans to expand by 13% in 2016. Liberum Capital analysts said the
acceleration of Primark's new-store-opening program would double
ABF's sales and profit over the next five years. Hargreaves
Lansdown Stockbrokers equity analyst Keith Bowman agreed, noting
planned expansions in Germany, the Netherlands and Belgium, as well
as the long-term opportunity in the U.S.
ABF shares were down 0.4% to 3,422 pence in afternoon London
trading.
Write to Razak Musah Baba at Razak.Baba@wsj.com
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(END) Dow Jones Newswires
November 03, 2015 09:33 ET (14:33 GMT)
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