ABF warned that group profits were likely to fall in 2016 following a 30% drop to £717m in the year to 12 September, when a tough 12 months for its sugar business combined with currency exchange issues and lower profit margins at Primark. Adjusted operating profit was down 6% to £1.09bn and profit before tax also declined 6% to £1.03bn.
Advertisement
“We delivered a strong operational performance despite the challenges of food commodity deflation and big movements in exchange rates”, said George Weston, Chief Executive of Associated British Foods.
That held broadly true this year, with sales at Primark up 13% on a constant currency basis (8% at actual rates), largely as a result of a 9% increase in selling space as ABF builds more stores.
During the year the group made capital investments of £613m while net debt fell £252m to £194m.
ABF said a key influence on its food businesses was deflation in many of its major commodities, making growth in revenues hard to achieve. “While marginally down, our earnings per share result underlines the group’s strength”.
Implementing the “national living wage” will cost Primark tens of millions of pounds by 2020 but will not mean higher clothing prices, the retailer’s parent company has said.
The group also cautioned on Tuesday it expected currency pressures, notably the weakening of the euro and emerging market currencies versus the USA dollar and sterling, to lead to a “modest decline” in adjusted earnings in the 2015-16 year. Despite the fall, the firm increased dividends to investors, hiking it by 3% to 35p.
This is the third consecutive year that profits have fallen at AB Sugar.
Advertisement
At current rates the translation impact would be at a similar level to past year but the transactional impact would be greater and will be seen primarily in Primark and British Sugar, it said.
