Primark owner has outlook boost

Lloyd Doyle
September 11, 2017

"Adjusted operating profit for the group will be well ahead of previous year".

Primark owner Associated British Foods (ABF) has raised its full-year profit outlook after being boosted by strong sales at the low-priced fashion chain. Since its Q3 update on 6 July, the company has experienced a lower level of markdown.

For Primark, which accounts for over half of AB Foods' profit, the group said that it expects sales for the full year to be 13 per cent head of the previous year's figure at constant currency. On the same comparable basis but at actual exchange rates, sales are expected to be 20% ahead.

The fashion retailer added 1.5 million square feet of selling space in 2016-17 and plans 1.2 million in 2017-18. The stock of Associated British Foods plc (LON:ABF) has "Underperform" rating given on Monday, April 18 by RBC Capital Markets.

Revenue from the company's grocery businesses is expected to be level with past year, however, adjusted operating profit is expected to be lower.

However, margins declined at Allied Bakeries as a result of a competitive United Kingdom bread market and inflationary cost pressures.

He added: "With the worst of the pound's weakening over and the currency now stabilising, no translation benefits are expected next year".

The crop is developing well, following recent favourable rainfall and temperatures, and the latest sugar production estimate for 2017/18 is in excess of 1.4 million tonnes. The sugar segment is engaged in growing and processing of sugar beet and sugar cane for sale to industrial users. Sugar operations in north China, at Zhangbei and Qianqi, processed a record beet crop with 180,000 tonnes of sugar produced, while market prices have been stable and profit is expected to be similar to past year.

Associated British Foods (ASBFY) lifted its full year guidance on the strength of its low-priced retailer Primark but margin pressure sends shares down.

"However, the strengthening of the euro against the U.S. dollar in recent months will have a beneficial transaction effect on Primark's Eurozone margins, particularly in the second half of the year if these rates prevail". The euro's strength is also expected to benefit British Sugar's margin next year at current forex rates.

Some of this cash will be absorbed by the purchase of Acetum, the Italian producer of Balsamic Vinegar of Modena, whose brands include Mazzetti, Acetum and Fini, that was also announced on Monday. In the year ended December 31, 2016 the business generated net sales of EUR103 million.

AB Foods regards the acquisition as an opportunity to broaden its global presence in speciality foods, developing it alongside its Patak's, Blue Dragon, Jordans and Dorset Cereals businesses.

Other reports by Iphone Fresh

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