ABF expects larger impact from FX on full-year profits

7th Sep 2015 07:46

(ShareCast News) - Full-year operating profits at Primark-owner Associated British Foods were set to take a larger than expected hit due to weakness in the euro and - especially in recent weeks - emerging market currencies.Factoring out foreign exchange rate movements, or at so-called constant exchange rates, operating profits in Grocery, Agriculture, Ingredients and Retail would improve on a year ago.Sugar on the other hand was still set to register a fall in profits, at both actual and constant exchange rates.Strength in sterling and the US dollar vis-à-vis the single currency would now lop off £30m from profits, the company said in a statement."If current rates persist we expect an adverse effect on adjusted operating profit next year. The translation impact will be at a similar level to the current year but the transactional impact will be greater," management said in a statement.At its interim results on 21 April the outfit foresaw £25m in charges from FX headwinds for the full financial year.Sugar prices in the European Union did stabilise over the past financial year and "some price recovery" was expected during 2015/2016.Globally however sugar prices plumbed to their lowest levels in six years, reaching 11.0 cents per pound.At Primark, the outfit's fashion arm, a 9% increase in selling space was expected to drive a 13% rise in overall sales, with adverse weather having impacted negatively throughout the year.Credit Suisse sees big negative impact on Primark from FXIndependent retail analyst Nick Bubb said: "The big focus in the press is on Thursday's opening of the first Primark store in the USA, in downtown Boston, but the City will be more concerned about the warning that operating/gross margins have been squeezed by the impact of the strength of the US dollar on Far East sourcing."For his part, Credit Suisse analyst Charlie Mills highlighted the "cautionary tone" around currency movements for the new financial year, which contributed to his decision to lower his earnings per share forecast for next year by 3% to 97p."ABF always has more exposure to African, Lat Am and Asian (Thailand) than is apparent. The group highlights that the FX impact on translation looks to be another £30m while we continue to expect a transactional impact on Primark's margins of around 150bps (nearly a £100m hit)."On a more positive note, Mills pointed out the strong finish for the year at Primark, which saw like-for-like sales advance 4% in the fourth quarter, with a strong showing in Spain, a "robust" UK and less "cannibalisation" in Germany and Holland.