Things are far from sweet at the sugar division of Associated British Foods (LON:ABF), which issued a mild profit warning on Monday morning.
The British Sugar owner said its sugar unit’s struggles, plus a £30mln hit from unhelpful exchange rate movements, will lead to a decline in the group’s adjusted operating profit for the full-year, despite its Grocery, Agriculture, Ingredients and Retail divisions all having better years than last time round.
The shares were among the few blue-chips to fall back in early trading, shedding 69p at 3,070p.
On the plus side, the net interest charge will be lower this year than last, because of reduced borrowings, while the underlying tax rate will also be lower.
“Our earnings expectation for this financial year continues to reflect a modest decline in adjusted earnings per share for the group for the full year,” the group, best known for its Primark retail operations, said.
Broker Liberum Capital said it regards this fiscal year and the next to be transitional years for AB Foods, with earnings set to rebound strongly by fiscal 2017, as the EU sugar industry consolidates and the Sugar division’s profits recover.
“ABF offers compelling exposure to secular growth trends in retail over the next 5-10 years and Primark announced entry into Italy in spring 2016. We estimate Primark can double sales and profits over the next five years boosted by the occasional store parcel (e.g. Sears deal the US),” the broker said.
Canaccord Genuity said the update revealed no surprises, although the foreign exchange rate hit has become more severe and could become even more so in 2016.
“Primark stores continue to suffer from cannibalisation in the Netherlands and Germany, and like-for-like sales across the Primark universe are a paltry +1% for the FY [full year]. We continue to think there is significant risk associated with the US expansion, where the first store (of 7, all on the East Coast) will be opening this Thursday,” the broker said.