Published: Tue, September 12, 2017
Health | By Jay Jacobs

Associated British Foods plc 4% Potential Decrease Indicated by Liberum Capital

Associated British Foods plc 4% Potential Decrease Indicated by Liberum Capital

The conglomerate, which alongside Primark also runs the likes The Silver Spoon Company and Twinings, says it expects its end-of-year report in November to report significant growth in adjusted operating profit.

Adjusted EBIT is due to be well ahead of last year, with net interest expense expected to be at a similar level to last year.

LONDON, Sept 11 (Reuters) - Associated British Foods raised its forecast for full- year results on Monday following a strong performance by bargain fashion retailer Primark.

It added that Primark had "experienced an even lower level of markdown" in the fourth quarter, helped by favourable weather, which has further improved the group's full year outlook.

Sales at Primark, which opened 30 new shops across nine countries over the year to take its global total to 345 outlets, are expected to be 13% ahead of last year at constant currency, with like-for-like sales up 1% at constant currency or 20% when the effects of the weak pound are included.

ABF said that comparable revenue and operating profit at its sugar production business, which includes British Sugar, would be well ahead of a year ago. Overall, Associated British Foods will open 19 new stores together with a number of relocations and extensions.

ABF, which owned brands such as Twinings tea, Kingsmill bread and Silver Spoon sugar, generates revenue in Asia, Europe and the Americas and has benefited from sterling's slump following last year's European Union referendum vote.

United Kingdom sugar production this year had been abnormally low, at 900,000 tonnes, due to a reduction in the contracted growing area in response to the high level of European Union stocks brought forward from the previous year. Contributing to this are significantly lower sugar stocks and tight management during the year.

Illovo's 2016/17 season, which ended in March 2017, finished strongly and this has been followed by better growing conditions in the new season.

It said that because of this, the devaluation will result in a translation benefit of some £85m this financial year, most of which materialised during the first three quarters.

In analysts note sent to investors on 11 September, Associated British Foods PLC (LON:ABF) stock "Buy" was maintained at Liberum Capital.

Cash of around £650m is sitting in the bank, versus net debt of £315m at the end of previous year, thanks to the sale of the south China sugar and USA herbs & spices businesses.

Sterling's weakness against the U.S. dollar is expected to have a continued adverse transactional effect on Primark's margin in H1, although a benefit from the euro's strength is anticipated in H2. "At current exchange rates, we would also expect the euro's strength to benefit British Sugar's margin next year", the company added.

Capital expenditure will be higher than a year ago driven by a higher level of investment by Primark across all its countries of operation. Acetum generated net sales of €103m in the year to 31 December 2016.

Capital expenditure will be higher next year than this, partly to finance ambitious plans to grow the brands at Italian balsamic vinegar maker Acetum, the acquisition of which featured in the trading update.

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