The dent in sugar profits reflected the lower EU sugar beet crops – with the UK harvest alone falling from 1.32Mt to 1.15Mt – higher UK beet costs and difficult conditions in China.
City analyst Panmure Gordon said the price outlook for 2014 remained challenging. “But the decision to mothball two beet factories (with a write-down of £22M) and the sale of a third factory should mean losses narrow in 2014,” said the analyst's executive director Graham Jones.
Operating earnings
However, Panmure Gordon maintained its forecast of a 20% fall in earnings before interest, tax and amortisation (EBITA) to £345M in 2014 driven by a significant fall in EU sugar prices but offset by further expansion at Primark and improved sales and margin in grocery.
The analyst left its 2014 earnings per share forecast unchanged at 101p, which equated to 2.9% growth. Net debt was predicted to fall to £648M, from its current level to £804M, as cash flow strengthened further.
The grocery division’s EBITA rose by 24% to £232M, reflecting lower year-on-year restructuring charges, another strong performance from Twining Ovaltine and an underlying improvement in Australia in the second half. Jones estimated Twining Ovaltine contributed about 60% of the division’s profit.
Allied Bakeries
“Allied Bakeries saw strong volume growth coupled with a further reduction in its cost base, although intense competition squeezed margins,” said Jones. Jordans Ryvita and AB World Foods also made good progress – with EBITA forecast to climb by 18% to reach £274M.
While ABF’s ingredients division delivered £7M of operating earnings, on a continuing basis, profit fell by 96% from £27M to just £1M. But the fall included a £21M charge for closing dry yeast production in Italy and £5M of accelerated depreciation in China, leaving the underlying performance “not materially different”, said Jones.
The group’s star performer was clothing retailer Primark, which achieved a 44% rise in EBITA to £514M, with margins rising during the year from 10.2% to 12%.
Sales climbed by 22% to £4.27bn, driven by 5% like-for-like sales growth, a 10% increase in sales space to 836,127m2 and higher sales densities at new stores.
Panmure Gordon retained its ‘hold’ advice on ABF stock.
George Weston, ABF chief executive, welcomed “the great set of results”. Weston said: “Grocery was much improved, agriculture achieved record profits, sugar was in line with our expectations and it was a remarkable year for Primark.”