Sterling boosts ABF but outlook mixed

07 July, 2016

Kingsmill-owner Associated British Foods (ABF) expects its bottom line to be boosted by a Brexit-weakened pound in the final quarter, it said in its trading update today. 

ABF said revenue grew 1% year-on-year in the 40 weeks to 18 June, and that its underlying operating performance “was ahead of our expectation.”

It said its sugar business benefited from cost-cutting efforts as well as rising prices in Europe. Sales volumes at Allied Bakeries were well ahead of last year although margins remain under pressure

It also said in the update that the weakening in sterling following the Brexit vote would mean “a bigger translation benefit in the final quarter with no material transactional effect.”

“As a result, our outlook for this financial year has improved and we no longer expect a decline in adjusted earnings per share for the group for the full year,” the statement said.

But looking ahead, the group was more cautious. It said: “If current exchange rates continue there will be a translation benefit for the remainder of this financial year.

In our next financial year, these rates would have both positive and negative effects on profit. There would be a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK, which last year were some 50% of the total.”

Revenue for AB Sugar was higher than last year at constant currency.  A reduction of EU stock levels and an increase in world sugar prices resulted in a strengthening of European sugar prices, it said.

With most of British Sugar's contracts for the current year already agreed, there will be no material impact on its profit from the improvement in pricing until next year, it said.

It added that all its sugar businesses have delivered substantial cost reductions again this year.

Sales at ABF-owned Primark were up 7% up year-on-year.  In May ABF confirmed that its proposal to move to full ownership of Illovo Sugar will go ahead. The company completed the buyout of the minorities in Illovo Sugar Limited for a purchase consideration of £245m.

Illovo expects to produce 1.47m tonnes of sugar this year, and it said an improved sales mix and further cost savings across the business have contributed to an increase in full year profit estimates.





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