ASBFY Associated British Foods Plc (PK)

By Maria Kunle and Razak Musah Baba 

LONDON-- Associated British Foods PLC, the agricultural products supplier that owns the Primark fast-fashion brand, on Tuesday reported a 30% drop in fiscal 2015 profit as the strength of sterling and a tough year at its sugar business hurt performance.

ABF said pretax profit fell to GBP717 million ($1.11 billion) in the 52 weeks ended Sept. 12 from GBP1.02 billion in the previous fiscal year, on a 1.1% decline in revenue to GBP12.80 billion.

ABF said its underlying performance was less weak. Stripping out exceptional items and other costs, pretax profit fell 7.2% to GBP1.03 billion from GBP1.11 billion.

"The good underlying trading achieved by our businesses in 2015 is expected to continue," Chairman Charles Sinclair said. "We intend to maintain investment in expansion opportunities, most notably for Primark." The fashion chain, popular in Europe, in September opened its first U.S. store, in Boston. The opening came too late to be reflected in fiscal 2015 results.

Primark plans to open its second U.S. store Nov. 25 at the King of Prussia mall near Philadelphia, and it plans seven other store openings in the Northeast by the end of 2016. ABF offered no new details on those locations Tuesday.

The company said it forecasts a turnaround at its sugar unit. "After three years of large profit declines for AB Sugar, we expect greater stability in profit next year ahead of the EU quota removal in 2017," Mr. Sinclair said in a statement. The current European Union production quota on sugar beets is due to end Sept. 30, 2017.

Analysts from Liberum Capital said they agreed with the outlook. "We expect industry consolidation, lower beet prices and further costs savings will boost sugar profits" from fiscal 2016, they said in a report on Tuesday.

But volatile currency markets could still weigh on the group's earnings, notably at Primark and British Sugar, Mr. Sinclair said. "At this early stage we expect the currency pressures to lead to a modest decline in adjusted operating profit and adjusted earnings for the group for the coming year," he said.

Currency movements will significantly offset the benefits of lower beet costs and potential recovery in EU prices in 2016, Barclays analysts wrote. They said they expect ABF to turn in "a modest decline in adjusted operating profit and adjusted earnings for the group for the coming year."

Bernstein analysts also said ABF should expect "two consecutive years of flat or negative earnings per share growth," so 2016 should "cool the enthusiasm" of investors. They "will have to look further out for strong growth in 2017 and beyond," Bernstein said.

Other analysts take a brighter view of ABF's future, noting the growing margins of the Primark division, whose retail space ABF plans to expand by 13% in 2016. Liberum Capital analysts said the acceleration of Primark's new-store-opening program would double ABF's sales and profit over the next five years. Hargreaves Lansdown Stockbrokers equity analyst Keith Bowman agreed, noting planned expansions in Germany, the Netherlands and Belgium, as well as the long-term opportunity in the U.S.

ABF shares were down 0.4% to 3,422 pence in afternoon London trading.

Write to Razak Musah Baba at Razak.Baba@wsj.com

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(END) Dow Jones Newswires

November 03, 2015 09:33 ET (14:33 GMT)

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