ABF: Sugar slump offset by Primark and grocery
Primark delivered a 26% increase in earnings before interest, tax and amortisation (EBITA) and revealed plans to launch in the north east US towards the end of next year.
ABF’s Grocery business recorded a 31% rise in EBITA to £126M, after constant currency sales rose by 2%. City analyst Panmure Gordon described the results as impressive, given there were no restructuring charges in the base period.
Bread and meat
The key drivers of growth were Australia, where good progress has been made in both bread and meat, and ACH in the US, which saw higher volumes and lower costs drive profits higher, said Graham Jones, Panmure Gordon’s executive director of Equity Research.
“Allied Bakeries has impressively delivered both higher volumes and margins despite a highly competitive UK bread market, while Twinings Ovaltine delivered another period of good growth,” said Jones.
“Jordans, Ryvita, Westmill and Patak’s all performed well although Silver Spoon sales were ‘well below last year’ as a result of lost contracts and lower sugar prices, although the profit impact was partly mitigated by reduced overheads.”
ABF’s sugar business reported EBITA down from £162M to £64M, despite the absence of £22M in costs incurred last year for mothballing two small beet factories in China.
“This profit fall was driven by the significant fall in sugar prices combined with lower volumes in all markets,” said Jones. UK sugar production is estimated to be 1.32Mt this year, a record since the regime reforms in 2006.
Ingredients/Agriculture
Firm’s Ingredients/Agriculture business saw profit rise from zero last year to £15M, after sales 4% higher in constant currencies but 3% lower in actual exchange rates at £509M. “It benefitted from the absence of the one-time costs associated with the closure of Italian dry yeast production last year, but there were also early signs of improvement in yeast and bakery ingredients,” said Jones.
Profits in Agriculture were flat in constant currency at £19M.
ABF said the outlook for the year remained unchanged, with adjusted earnings per share similar to last year – with second half drag from Sugar, combined with a full-year profit hit from currency, of about £50M, largely offsetting strong growth in Retail and Grocery.
Jones predicted Primark’s US launch will be successful and could theoretically double Primark’s long-term growth potential, alongside big expansion opportunities across Europe.
Panmure Gordon upgraded its advice on ABF stock to ‘buy’.
ABF chief executive George Weston said: “The group as a whole has delivered a very resilient operational and financial result at a challenging time of transition for our European sugar business.”
Meanwhile, ABF also announced the appointment of Ruth Cairnie as a non-executive director with effect from May 1. Cairnie was formerly executive vice president strategy and planning at Royal Dutch Shell.
