Strong Pound and Falling Sugar Prices Hit ABF Profits

08 Sept 2015 --- Falling sugar prices have impacted profits at Associated British Foods, while the s…

08 Sept 2015 --- Falling sugar prices have impacted profits at Associated British Foods, while the strong pound (£) has wiped €41m from the bottom line in its latest trading update. The group’s clothing retail arm, namely Primark, has seen sales soar, which has saved the company, say some analysts.

Primark accounts for around half of ABF’s profits and rising sales, with international store openings are keeping the retailer buoyant for now.
ABF reported that its grocery, ingredients and agriculture

divisions also helped to keep profits up, but that a strong pound going into 2016 would continue to impact the bottom line. “If current rates persist we expect an adverse effect on adjusted operating profit next year. The translation impact will be at a similar level to the current year but the transactional impact will be greater,” the statement said.

In terms of sugar, the company said that revenue and adjusted operating profit for AB Sugar for the full year, at both actual and constant currency, will again be substantially lower than the previous year driven by the further decline in European sugar prices.

It said that sugar prices in the EU have now stabilised and with quota stock levels reducing back towards historic norms, so some recovery is expected during 2015/16. Prices in China increased during the year, as a consequence of lower domestic production and reduced imports leading to lower inventory levels, but they are still at a premium to import parity prices. World prices declined with recent pricing below 11.0 cents per pound which is the lowest for more than six years. This has led to an increase in low-cost imports into Africa which has held back some domestic prices.

Ingredients’ revenues will be ahead of last year at constant currency but, with the strengthening of sterling and most of ABF’s businesses being located overseas, sales at actual rates are expected to be in line. Operating profit at actual exchange rates will be substantially ahead of last year and, as a consequence, margin will be much improved.

AB Mauri, the bakery ingredients and yeast business delivered a second year of significant profit recovery. This was driven by its operations in the US and Canada and, despite difficult economic conditions, Brazil and HispanoAmerica also made good progress. Cost reduction and improved plant utilisation resulted in a better operating result at Veracruz in Mexico. The newly integrated milling and bakery ingredients business in Australia and New Zealand achieved volume growth and a good result despite a challenging market as competitors drove significant price pressure. AB Mauri’s smaller, speciality yeast business operating in non-bakery markets achieved significant growth particularly in alcoholic beverages.

ABF Ingredients delivered excellent growth in sales and operating profit driven by a highly successful year for its enzymes business across the feed, detergent and pulp and paper sectors.