LONDON (dpa-AFX) - Associated British Foods PLC (ASBFY.PK, ABF.L) said that its full year outlook for the group is unchanged with progress expected in adjusted operating profit and adjusted earnings per share. Strong profit performances this year from Primark, Grocery, Agriculture and Ingredients are expected to more than offset the adverse effect of lower EU sugar prices.
Net interest expense will be lower than last year, following favourable interest rate movements affecting non-sterling denominated borrowings in Southern Africa, and the underlying tax rate will benefit from the reduction in the US federal corporate tax rate.
The company issued update prior to entering the close period for its full year results for the 52 weeks to 15 September 2018, which are scheduled to be announced on 6 November 2018.
With two thirds of the group's operating profit earned outside the UK, the strengthening of sterling against most of our trading currencies, other than the euro, will result in a loss on translation this year of some 20 million pounds. For the full year, US dollar weakness against the euro has had a favourable transactional effect on Primark's largely dollar denominated purchases, particularly in the second half. The movement in sterling across the year resulted in the expected negative transactional effect in the first half moving to a favourable effect in the second half.
Grocery revenues are expected to be ahead of last year and adjusted operating profit to be well ahead, driven by growth in Twinings Ovaltine, improved margin at George Weston Foods and the first year of contribution from Acetum.
AB Sugar's revenue and adjusted operating profit will be well down on last year due primarily to significantly lower EU prices adversely affecting our UK and Spanish businesses. The profitability of our successful African business, Illovo, will be maintained.
In the UK, sugar production increased considerably to 1.37 million tonnes. Next year's production is expected to be much lower, driven by reduced beet yields as a consequence of late drilling, due to wet spring weather followed by the unusually dry summer.
In Spain, beet sugar production is expected to be slightly ahead of last year at 0.4 million tonnes. For the 2018/19 campaign recent rainfall has dispelled earlier concerns around water availability.
AB Agri revenues will be well ahead of last year, with growth in all businesses, with a consequent increase in operating profit.
Ingredients' revenues will be ahead of last year and operating profit will again be well ahead with a further increase in margin.
Sales at Primark for the full year are expected to be 5.5% ahead of last year at constant currency, driven by increased selling space offset by a 2% decline in like-for-like sales. At actual exchange rates sales are expected to be 6% ahead.
Looking ahead to next year, forward exchange contracts have been secured against all merchandise for autumn/winter. Assuming that spring/summer is secured at current exchange rates we would expect the operating margin in Primark to be in line with this year at 11%. However, the exchange rate applicable to sales in the second half will be sensitive to sterling exchange rate volatility which is likely to arise given a period of intense Brexit negotiations.
In the next financial year the company is planning over 1 million sq ft of additional selling space, with more than 0.5m sq ft being added in the first half. Germany, France, Spain and the UK will see the most space added and overall we will open 14 new stores. It will move to new premises at Birmingham Pavilions which, at 160,000 sq ft, will become its largest store in the whole estate.
Copyright RTT News/dpa-AFX