Even Primark can’t save Associated British Foods from a drop in profits this year, as sugar and currency woes hit the business hard

Associated British Foods (ABF) has confirmed its adjusted operating profit will decline for the full year as its has failed to offset challenges in its sugar division and currency headwinds. 

 

Operating profit at constant currency will be ahead of last year for grocery, agriculture, ingredients and retail, ABF said this morning. The firm's share price has fallen 2.4 per cent as a result. 

 

However it is taking a £30m hit on the strength of the sterling, which it said “will give rise to an overall decline in adjusted operating profit for the group”.

 

“Our earnings expectation for this financial year continues to reflect a modest decline in adjusted earnings per share for the group for the full year,” ABF added. 

 

Revenue and adjusted operating profit for AB Sugar at both actual and constant currency “will again be substantially lower than the previous year”, driven by a drop in European sugar prices.

 

ABF said it had significantly reduced its overheads as part of its ongoing programme, “however, these could not compensate for the impact of lower prices”.

 

But the company is expecting “some price recovery” during the new financial year, with prices in China increasing as a result of a drop in production and reduced imports. 

 

Although traditionally retail has been ABF's jewel in the crown, this year the story is mixed. 

 

Sales at Primark are expected to rise 13 per cent on last year, with “very high sales densities” achieved in stores opened within the last 18 months, particularly in France “which has been our most succesful new market entry to date”. 

 

But even this division isn't immune to the strong sterling. As a result of the weakening euro, sales are expected to be eight per cent ahead at actual exchange rates.

 

And operating profit is expected to be lower than last year as a result of more items being marked down and the effect of the stronger US dollar. 

 

“Primark sources much of its merchandise in dollars and as already indicated, the US dollar’s strength, particularly against the euro, will have an adverse effect on margins in the new financial year, especially in the first half. However, a good proportion of the impact has been successfully mitigated by our buying teams as they firm up orders for next year,” ABF said. 

 

But the Weston family-owned business is confident about the outlook, with stores equalling 1.5m sq ft due to open in the new financial year, much of which will be in the US, UK and Spain. 

 

And it's not all bad: operating profits at ABF's grocery division is expected to be ahead of last year, although revenues will be down, largely as a result of commodity price inflation. 

 

It will also be another record year at ABF Agri, with “strong performances across all businesses”.