Associated British Foods plc (LON:ABF) lifted its total full year dividend by 12% as profit and revenue grew on the back of an improvement in its sugar business and another strong performance at its Primark stores.
However, shares fell 3.71% to 3,219p as the company said it plans to reduce the size of three of its Primark stores in the US in the coming year. The move comes as US retailers come under pressure from a trend of heavy discounting to lure customers in a competitive market.
READ: Brokers turning more positive on Primark-owner AB Foods following yesterday's upbeat trading statement
"The main story for investors was the news the group is reducing the size of three Primark stores in the US. America is the next big project for Primark, which accounts for over half of group profits," said George Salmon, equity analyst at Hargreaves Lansdown.
He addded: "The news is not terminal by any means, and investors should remember that there’s always going to be bumps in the road when expanding into new territories. However, these first sign of cracks in its ambitious and potentially lucrative plans to conquer the American apparel market will mean we’ll be reading future updates all the more closely."
Dividend hiked as profits benefit from weaker pound
The company recommended a final dividend per share of 29.65p, bringing its total dividend for the year to September 16 to 41p.
Adjusted operating profit gained 22% to £1.3bn compared to last year and revenue increased 15% to £15.4bn, including the benefit of a weaker pound against other currenices as more than 60% of ABF's sales and profits are generated outside the UK.
Excluding currency fluctations, adjusted operating profit climbed 13% and revenue rose 6%.
Primark contributed £735mln to operating profit, up 3% at constant currency or 7% on a reported basis, while sugar added £223mln, up 374% at constant exchange rates or 537% at actual exchange rates.
“These results reflect our international diversity, and the strong underlying performance of our businesses was driven by management actions throughout the year,” said chief executive George Western.
“Capital investment was a record as we continued to pursue the opportunities to grow our businesses into the future."
Gross investment for the year came to £945mln as the company opened 30 more Primark stores and spent £79mln on acquisitions, including bakery ingredients firm Specialty Blending, Supreme Oil and sports nutrition businesses HIGH5 and Reflex Nutrition.
Sales rise across most units but grocery under pressure
Primark sales rose 12% to £7.1bn at constant currency or 14% on a comparable basis, adjusting for the impact of 2016 being a 53-week year, boosted by increased selling space.
The sugar business delivered a 21% increase in revenue to £2.1bn at constant currency, supported by an increase in sugar prices in the European Union (EU), lower UK beet costs, increased sales and production volumes at its South African sugar arm Illovo.
However, the group warned that EU sugar prices for the new financial year will be lower than this year, though the impact to profits will be mitigated by an increase in production and the benefit of a stronger euro against the pound.
The Agriculture division saw revenue rise 8% to £1.2mln at constant exchange rates with growth across all businesses and the benefit of a full year of trading from Danish soy protein and feed additives producer, Agrokorn, which was acquired last year.
Ingredients revenue edged up 2% at constant currency to £1.4bn as the company bought Speciality Blending in the US and launched new bakery ingredient products in the country to keep up with fierce competition.
Grocery revenue, however, dropped 6% at constant exchange rates as tough competition in the UK bread market and inflationary cost pressures hit margins at the Allied Bakeries business.
Primark's outlook
Looking ahead, the company said selling space expansion at Primark will continue, mostly in the UK, and it predicts an increase in retail profit in the current year. ABF expects “progress” from its grocery, agriculture and ingredients businesses.
“Taking all of these factors into account, at this early stage, we expect progress in adjusted operating profit and adjusted earnings per share for the group for the coming year,” the group added.