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Associated British Foods hit by strength of sterling

Published: 07:48 14 Jan 2016 GMT

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The strength of sterling is hitting Primark and British Sugar particularly hard

Foreign exchange head-winds stalled top-line growth in the final four months of 2015 at Primark owner Associated British Foods (LON:ABF).

The group said the underlying trading outlook remains unchanged, with plenty of expansion possibilities available, especially for Primark, and there is increasing evidence that the group's expectation of stability in sugar profit in advance of the removal of EU quotas in 2017 will materialise.

On the downside, currency pressures are expected to lead to a modest decline in adjusted operating profit and adjusted earnings for the full year.

Group revenue in the 16 weeks to 2 January was down 2% year-on-year, but would have been 3% ahead at constant exchange rates (CER).

Sales at clothing store Primark were up 7% on a year earlier on a CER basis, in line with the increase in retail selling space.

The company said the like-for-like (LFL) sales performance in the first seven weeks of the financial year was strong but after that, in common with some other clothing retailers, LFL sales were weaker as a result of the weather, which was both wetter and warmer than Primark would have liked.

As expected, operating profit margin in the period was lower than last year, as a result of the stronger US dollar, but the margin reduction was lower than initially envisaged, partly as a result of a lower level of mark-downs.

In AB Foods' hard-pressed Sugar business, AB Sugar continued to make good progress with its Performance Improvement Programme, which is expected to yield further significant gains in the coming year.

The Grocery division has made further margin progress, the company revealed, with Twinings Ovaltine achieving strong sales growth in Australia and an improvement in Thailand. 

Trading at George Weston Foods in Australia was much improved continuing the momentum of last year with a much better performance from the Don KRC meat business, while Allied Bakeries achieved a substantial increase in sales volumes although pricing and margins remain challenging.

Finally, the Agriculture and Ingredients arm saw its Agriculture revenues hit by lower sugar beet feed volumes and the continuation of lower commodity prices, but the Ingredients side “made further substantial profit progress”.

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