AB Foods beats earnings forecasts, "expects progress" for 2018

For the new financial year, the expansion of Primark's selling space will continue and with margins expected to be in line with the current year management expect an increase in retail profit.

For the grocery, agriculture and ingredients arms "progress is expected", while in Sugar, "higher volumes and lower costs will only partially mitigate the effect of much lower EU prices".

"Taking all of these factors into account, at this early stage, we expect progress in adjusted operating profit and adjusted earnings per share for the group for the coming year," the company said.

For year just completed, revenues of £15.4bn were up 15% on the prior year, or 6% at constant currency rates.

Sales at Primark up 19% ahead of last year at actual exchange rates and 12% ahead at constant currency, with like-for-like sales up 1% and 14% ahead driven by increased retail selling space.

Primark's operating profit margin declined from 11.6% to 10.4% reflecting the strength of the US dollar on input costs, with this likely to hit margins in the first half of the new trading year before being offset by a stronger euro/pound exchange rate.

Primark's US push is making slow progress, with management having "learned much" and now engaged in "fine-tuning", including reducing size of three stores for "efficiency" purposes.

Sugar was the other notable performance, with revenues up 33% to £2.2bn and a 537% surge in profit to £223m, mostly reflecting higher EU sugar prices, lower UK beet costs, and increased production and sales volumes at Illovo. Sugar margins rocketed from 2.1% in 2016 to 10.3%.

Grocery was a slight disappointment, with profits falling 6% at constant rates as margins declined slightly to 9%.

Adjusted operating profit leapt 22% higher to £1.36bn, or 13% at constant currencies, as the Primark clothing retail arm was able to reduce levels of price promotion as it added 30 new shops around the world and sugar profits surged more than sixfold.

Currencies were also a considerable one-off benefit to the group after the fall in the pound after the Brexit vote, with more than 60% of group sales and profits generated outside the UK this year but management confirmed no material benefit was expected in the coming year.

Adjusted profits before tax were 22% higher at £1.31bn and adjusted earnings per share jumped 20% to 127.1p, which was ahead of the consensus forecast of 125.7p.

With the proposal of a 29.65p final dividend, the total for the year was increased 12% to 41.0p, which was shy of the 42.2p consensus estimate.

ABF shares were down 3.5% after almost an hour of trading on Tuesday.

Neil Wilson at ETX Capital said Primark sales, although strong, were a little short of the 20% and 13% figures expected in the third-quarter update.

"Signs of a softer retail market should not pose too many problems, albeit the results don’t include some of the weaker retail sales seen through September and October. We must note that non-food sales in the three months to October grew at the weakest pace on record. Whatever the economy is like, Primark is recession proof - if consumer spending is slowing, Primark is the sort of brand that benefits," he said.

He noted that it progress in the US had shown little more than a beachhead invasion after two year but, as any musical artiste will tell you, "cracking the US is tough".

On the squeezed profits at grocery, Wilson said: "Part of the reason for this seems to be the proliferation and popularisation of supermarket own brand goods. In particular own-label brands are the staple of the likes of Aldi and Lidl which are growing market share in the UK, which appears a net negative for ABF as they prefer to stock their own goods."

Analysts at Shore Capital said the results were "comfortably ahead of expectations", with net cash of £673m a little ahead of expectations too.

With the outlook for "progress" in adjusted operating profit and EPS, ShoreCap said it expected to leave forecasts broadly unchanged, currently looking for EPS of 134.0p, up 5%.