Associated British Foods (ABF) remained upbeat in its trading update for the 40 weeks to 18 June, despite the currents woes in the wider economy.
The group said that revenue over the period was up 3% at constant currency and 1% ahead at actual exchange rates. This it said reflected stronger growth in the third quarter (4% at constant currency and 7% at actual exchange rates).
Amid fears of the impact on businesses from the falling value of sterling following the EU referendum, ABF expects the trend to boost its bottom line. The group said that at current rates, it expects a bigger translation benefit in the final quarter with no material transactional effect. It added that as a result, its outlook for this financial year has improved and it no longer expects a decline in adjusted earnings per share for the group for the full year.
In its grocery division, ABF said it continued with some improvement in revenue growth in the third quarter. Twinings Ovaltine made further advances in its biggest markets of the UK, US and Thailand. Sales volumes at Allied Bakeries were also well ahead of last year although margins remained under pressure. The performance of the bakery and meat businesses at George Weston Foods in Australia continued to improve.
Revenue for AB Sugar was higher than last year at constant currency. The group said that a reduction of EU stock levels and, more recently, an increase in world sugar prices have resulted in a strengthening of European sugar prices. However, with most of British Sugar’s contracts for the current year already agreed, the group doesn’t expect any material impact on its profit from the improvement in pricing until next year.
Meanwhile, its ingredients business continued to build on the improvement of the last two years and the group said that operating profit remained substantially ahead, with the benefit of further recovery in yeast and bakery ingredients.
In ABF’s retail division, sales at Primark in the year to date were 7% ahead of last year at constant currency driven by increased retail selling space. However, the group said that like-for-like sales in the last 16 weeks were adversely affected by the poor weather.
Looking ahead, ABF said UK referendum result has created uncertainty in the business environment and financial markets. It stated that it is an international business with diverse interests across 48 countries and a business model that, wherever possible, aligns production with the end markets for its products.
If current exchange rates continue as they are, ABF expects a translation benefit for the remainder of this financial year. In next financial year, the group said that these rates would have both positive and negative effects on profit. There would be an adverse transactional effect on the profit margin on Primark’s UK sales, currently half of its turnover, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK, which last year were some 50% of the total.
“We have a strong balance sheet and we remain optimistic for the group’s continued growth, particularly with our plans for Primark’s expansion which remain unchanged,” the group’s statement concluded.