Weaker sterling helps lift numbers at Associated British Foods

Associated British Foods was banking on a decline in the pound on Monday, as it prepared the market for a dip in earnings in the current first half.

The company's board said it expected some progress in adjusted operating profit for the group in the current period, though adjusted earnings per share were expected to be slightly lower.

ABF said the underlying trading outlook for the full year remained unchanged, with the weakening of sterling in recent weeks - particularly against the euro - easing the effect of currency translation on the year's results from £25m to £10m.

"We now expect only a marginal decline in adjusted earnings per share for the group, for the full year," its board said in a statement.

The company expected an operating cash outflow in the first half of the year consistent with its previous cyclical pattern of cash generation, with a lower working capital outflow as a result of reduced sugar stocks and a lower inventory at Primark.

Capital expenditure was higher, however, driven by the expansion of the Primark chain.

"Net debt is expected to be some £0.4bn, substantially lower than at the same time last year, reflecting good cash management in this year's first half and strong cash generation in the second half of last year," the board said.

Broken down by categories, ABF's grocery division was looking at revenue and profit close to the prior year on a constant currency basis, though revenue was expected to be slightly lower at actual exchange rates with margins continuing to show progress.

The company said its sugar division - AB Sugar - was performing steadily in the first half.

"World prices remain low, but a tightening of EU and Chinese stock levels has resulted in a strengthening of domestic prices in those markets," the board explained.

As most of British Sugar's contracts for the current year were already agreed, the board warned that there would be no material impact from the improvement in pricing until next year.

In agriculture, revenue was expected to be lower than last year, particularly in the UK feed business AB Connect. Excellent trading at AB Vista was driving further margin improvement for the division as a whole, however.

The company's ingredients arm was looking at revenues ahead of last year at constant currency, though a little lower at actual exchange rates, the board said.

"Operating profit will again be well ahead of last year, with further recovery in yeast and bakery ingredients and another strong performance from ABF Ingredients," the board stated.

ABF's retail division - which consisted entirely of budget high street fashion chain Primark - was the shining star for the board, with sales expected to be 7.5% at constant currency and 4% at actual exchange rate, as a result of the brand's continued expansion.

"Operating profit margin in the period had been better than expected, with much of the impact of the stronger dollar being mitigated by a good buying performance and a lower level of markdowns arising from a well-managed stock position," the board said.

Primark's foray into the US was continuing apace as well, with the second store in the country opening in November and the company planning a further six stores in the current calendar year.

"Early trading at our two new stores in the US has been encouraging with the range and concept being well-received," the board said.