What the analysts say - Associated British Foods FY results

By Dean Best | 6 November 2012

Associated British Foods, the UK-based food and retail group, reported higher annual sales and profits today (6 November) after strong performances from its sugar and discount clothing businesses. However, earnings from its grocery division fell 23%. The view from the City on ABF's grocery unit was mixed.

Investec analyst Martin Deboo

"FY12 has been an annus mirabilis for ABF. Operating profits were 17% ahead, driven by rampant Sugars and strong Primark, both of which came in in line with what we would characterise as robust forecasts. But there have been issues elsewhere. Ingredients profits came in below our forecasts and were down 50% year on year. Grocery profits were down by 23% as ABF's travails in UK bread and Australia meats continue."

Andrew Wood, senior research analyst European food and HPC at Sanford Bernstein

"Overall the H2 results were strong, led by Sugar and Primark, and saw a major rebound from a weaker H1...leading to good FY results as well. For the FY, grocery growth was weak (+1.5%) and margin progress was poor (-165bps). Guidance for 2013 which was, as always, somewhat generic. Management promised "some further progress" (which seems less positive than the "growth in sales and adjusted operating profit" indicated last year)…with a weighting towards H1. However, we noted the specific mention of increased cereals costs (the first item in the outlook) and the reduction in profit on AB Sugar from the exceptional performance delivered in 2012. Guidance for continued progress in Primark seems reasonable, as does a recovery in grocery after a terrible 2012...although rising cereals costs could slow this recovery."

Graham Jones, executive director for equity research in consumer staples at Panmure Gordon

"ABF is pointing to a reduction in profits in Sugar for 2013, but this is expected to be more than offset by further growth at Primark and some recovery in Grocery. Grocery depressed by restructuring charges and Australia. Profits fell from GBP244m to GBP187m, broadly in line with our forecast of GBP189m. The key drivers of the performance were significant restructuring charges in Australia and at Allied Bakeries, and well documented difficulties in Australia. Twinings Ovaltine performed typically strongly in both parts of its business, and whilst promotional activity reduced margins modestly at Allied Bakeries, good progress has been made at reducing the cost base with the closure of two bakeries. We believe higher wheat prices have been largely recovered, and 2013 sales will also be boosted by volume gains with The Co-operative Group. We forecast a recovery in profits in 2013 to GBP242m, broadly back to the level seen in 2011."

Sectors: Bakery, Cereal, Commodities & ingredients, Condiments, dressings & sauces, Dried foods, Financials, Meat & poultry, World foods

Companies: Associated British Foods, The Co-operative Group

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