The financial outlook is continuing to brighten for Associated British Foods, the UK-based multinational food processing and retailing company. The company points to improvements in performance at its specialist retail division Primark as one of the underlying causes.
Issuing a trading update on the eve of the statutory close period ahead of the planned announcement of full-year results on 7 November, ABF says it expects to report good growth in adjusted operating profit and adjusted earnings per share for the group.
Currency movements have had a mixed impact. The post-EU referendum fall in sterling will result in an £85m windfall for the group this year as around two-thirds of its operating profit is earned outside the UK. But it has had an adverse effect on Primark's largely US dollar-denominated purchases.
Primark jumper, courtesy of ABF
Sterling weakness boosts sugar margins
Weakness against the euro has boosted margins recorded by British Sugar, says ABF. Overall, it does not expect to see a material currency translation benefit next year at current rates. Net proceeds from selling businesses in south China and the US totalled nearly £400m including debt disposed of.
Operating cash inflow will be much greater next year than this thanks to higher operating profit and a reduction in working capital. Contributing to this are significantly lower sugar stocks and tight management during the year.
Capital expenditure will be higher next year than this, partly to finance ambitious plans to grow the brands at Italian balsamic vinegar maker Acetum, the acquisition of which featured in the trading update. Acetum generated net sales of €103m in the year to 31 December 2016.
ABF still a hold
Graham Spooner, investment research analyst at independent UK brokerage The Share Centre, noted that the shares were down 1.8% in early trading this morning, but are up by over 30% since the end of January.
He said: “We continue to recommend Associated British Foods as a ‘hold' for medium risk investors as the longer-term growth prospects for Primark remain sound, there is increasing global demand for food and there are signs of improvement in the sugar business.”