ABF suffers sugar softening but cash flow remains robust - UPDATE

11th Jul 2013 07:01

Associated British Foods saw lower sugar revenues slowed group turnover growth in the third quarter and forewarned of softening sugar prices and the threat of rising production costs.Strong performances from other divisions, particularly agriculture and the Primark retail arm, saw total group sales up 8.0% in the 16 weeks to June 22nd, slowing revenue for the year to date by one percentage point to 9.0%.ABF reported that year-to-date cash flow continued to benefit from much higher profit and a lower level of capital expenditure and that net debt was more than £250m lower than the half year, at £1.1bn and falling.Sugar revenues were 15% lower, which the ABF said was mainly due to later planting and cold spring weather, together with unfavourable timing of shipments of Zambian exports to the European Union.The company, which confirmed that pricing negotiations between British sugar beet growers were ongoing but that better volumes were expected next year, warned that it was "now seeing some softening of European prices for the forthcoming year".Agriculture sales improved strongly from the previous quarter, charging ahead 18% and 12% in the year to date due to strong demand for cattle and chicken feed.The Primark retail arm slowed slightly but still maintained surging 22% growth thanks to an increase in retail selling space and good like-for-likes as the sun came out. Primark made its debut online in a partnership with Asos, and made a foray into France with a first store in Marseille. Grocery revenues accelerated 7.0% in the 16 weeks to June 22nd and 3.0% ahead for the year to date, as Twinings Ovaltine maintained its robust growth, particularly in the US, UK and France. Broker Canaccord Genuity noted that EU sugar peer Südzucker, the German sugar producer, reported this morning that sugar segment profits for the period March-May are down 18% which may concern investors in ABF, although some of this decline is company specific.Analyst Alicia Forry, who recently lowered her forecasts by a low single digit percentage, said: "We remain cautious on ABF due to possible sugar-related downgrades still looming, compounded by a higher than normal rating on the stock."OH