AB Foods hit by sugar low, but Primark profits margins surge

Associated British Foods said profits were improving at its Primark clothing retail arm but lower EU prices were dragging on its sugar business.

The conglomerate reported little change in sales patterns in the third quarter, with revenues for the first 40 weeks to 23 June up 2% or 3% at constant currency rates.

Overall guidance for the full year was unchanged, with “progress expected" in adjusted operating profit and adjusted earnings per share.

At Primark, margins were said to be “well ahead” of the first half thanks to better buying and a helpful weakening of the US dollar, though sales growth slowed and some European store expansion was delayed.

Revenue growth at the 'fast fashion' chain slowed to 7%, or 6% at constant currencies, down from 8% and 7% respectively in the first half due to the phasing of store space expansion being weighted towards the end of the year. Guidance for total new space has been downgraded to 0.9m square feet for the year from previous 1.2m sq ft, as 0.3m sq ft is expected to open early in the next financial year after delays to openings in Toulouse and Ingolstadt.

Like-for-like sales at Primark improved on those for the first half of the year driven by better trading in Europe, especially Italy, though UK LFL growth was lower than in the first half. Looking at the US, management were "encouraged" by trading in the resized stores at Freehold and Danbury, but said nothing more.

In the AB Sugar unit, revenues declined 17% in the quarter and expectations were reduced for the full year and next year, entirely driven by much weaker EU prices, which have been hit by low world prices and high production last year.

"For our next financial year, this level of EU sugar prices would represent a substantial reduction compared to those achieved this year," the group said. "As a result, our expectations for sales and profit at AB Sugar, both for this financial year and next, are lower than previously expected."

Across the rest of the group, grocery and ingredients both produced 4% revenue growth for the quarter, while agriculture sales were up 12%. For the three of them management is guiding to “good profit growth”.

ABF shares fell more than 4% to just above 2,600p in early trading.

Broker Shore Capital said it was "mixed" trading update but said it expects to leave its full year financial expectations "broadly unchanged", with an EPS forecast of 134.5p as guidance for strong Primark margins offsets further weakness in EU sugar pricing.