AB Foods presses on with investment as earnings impress
Associated British Foods reported stronger than expected earnings for the past year but said it expects growth to be flat in the coming year.
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Strong growth from its Primark retail arm, along with its Grocery, Agriculture and Ingredients divisions, offsetting a decline in the sugar business, resulted in adjusted profits before tax of £1.37bn in the year to end-September, up 5%. Revenues were 1% higher at £15.6bn but would have been up 3% without currency swings, slightly undershooting market estimates.
Adjusted earnings per share of 134.9p were up 6% on the previous year, beating the average analyst forecast of 132.9p.
The dividend was hiked 10% to 45p, also ahead of expectations.
AB Foods had broadly flagged the divisional performance in a pre-close update in September, with AB Sugar adjusted operating profit down 51% as it felt the effect of a worldwide surplus and as EU sales quotas and constraints on exports ended.
Primark's annual growth of 6% in sales was entirely from an expansion of shop selling space, with a fall in like-for-like sales of 2.1% blamed on bad weather in the eurozone but margins increased from 10.4% to 11.3% that helped adjusted operating profit grow 15% to £843m.
After investing a gross £1.2bn in growth over the past year, chief executive George Weston said his team have "clear plans for further investment and for pursuing opportunities for business improvement". Overall, at this early stage, he expects adjusted earnings per share for the group for the coming year to be in line with this year.
Management have outlined special areas of investment as being Primark, Twinings Ovaltine and Ingredients.
"Primark's selling space expansion will continue and, if margins are in line with the current year, we expect an increase in retail profit." Plans are to add at least another 1m square feet of store selling space, mostly in Germany, France, Spain and the UK, with a net 15 new stores, including a first in Slovenia to take the chain into its twelfth country and the lease signed for a first store in Poland.
The US business had a good year, with its ninth store opening, in Brooklyn, trading very strongly and existing stores delivering LFL growth in the second half. Two further stores are planned, New Jersey in 2019 and Florida in 2020, with work underway to add further stores "in the medium term" to be serviced from the existing US warehouse in the east.
Grocery profits are expected to improve as margins increase in the Australian and UK businesses, while new balsamic vinegar brand Acetum contributes for a full year.
The profit at AB Sugar will be "significantly lower" as the full year effect of the post-EU regime results in lower average prices.
While current exchange rates are not expected to have a large effect on profit, though the final throes of Brexit negotiations are likely to change things.
ABF shares, down 14% in the 2018 so far, rose more than 2% in early trading on Tuesday to 2,437p, not far off a three-month high.
Analysts at RBC Capital Markets said the results were slightly better than forecast and the flat earnings for 2019 are not unexpected.
Broker Liberum reckoned "in line" was a better description, with adjusted operating profit of £1.4bn was 4% ahead of Bloomberg consensus.
Analysts noted that Primark's second half LFL sales fell 2.7%, with Primark UK LFLs down 0.6% in the second half while Eurozone sales were pressured, particularly Northern Europe, due to weather. Grocery, Agriculture and Ingredient profits are all ahead of expectations.