Associated British Foods earnings warning sugared by Primark recovery

15th Jan 2015 07:08

Although its Primark retail division recovered strongly after a slow autumn, Associated British Foods warned of a "marginal" decline in full year earnings due to the strength of sterling coming on top of the expected large profit reduction at its sugar business and a £128m writedown from Chinese agricultural operations.Group revenue for the 16 weeks ended 3 January 2015 was 3% ahead of the same period last year at constant currency, or 1% ahead at actual exchange rates, with sales at Primark up 15% at constant currency but at the expense of margin as previously guided.Management said the decline in adjusted operating profit for the group will not fully be reflected on earnings due to "much lower" tax and interest charges, although sterling's strength will have a negative effect that was warned is now expected to lead to a marginal decline in adjusted earnings per share for the group for the full year.Primark, which in December reported like-for-like sales of winterwear were being hit by the warm weather, was reported to have had "strong" trading over the last five weeks, including Christmas, driven by increased store space and very high sales densities in stores opened during the last year, with exceptional trading from the stores opened in France.Since the financial year began in mid-September, the UK, Ireland, Spain and Portugal have each achieved like-for-like sales growth, though management explained that group-wide growth was held back by "the impact on existing stores of the new store openings in the Netherlands and Germany, although total sales in northern continental Europe were well ahead of last year".Retail selling space increased by 0.5m square feet by 3 January, as nine net store openings took the total to 287, with the total increase in space for the current year expected to be less than 1.0m sq ft.At AB Sugar, as guided in December, the company expects a "further large reduction in profit" in the full year as a result of EU pricing changes, although the sector is now seeing some stabilisation.UK sugar production in the current year is now estimated to be 1.40m tonnes, compared with last year's 1.32m, though the £128m writedown in China from the ceasing of operations in one region will add to losses but is expected to leave all of the remaining sugar factories in China cash generative.Elsewhere in the group, the grocery arm enjoyed record market shares in several products, while there was "strong momentum" in ingredients.