Associated British Foods’ grocery brands

Associated British Foods recorded a 3% decline in headline annual revenues as a 16% boost to Primark’s sales was pegged back by continued weakness in its sugar division.

Group revenue was down 3% to £12.9bn for the year to 13 September, but up 1% on a constant currency basis.

Similarly, adjusted profit fell marginally to £1.16bn, but rose 2% woth currency fluctuations factored out. Adjusted earnings per share was up 6% to 104.1p.

The star performer was again Primark, which saw a 16% sales increase (17% up on last year at constant currency) to £4.95bn, driven by an increase in retail selling space, like-for-like sales growth of 4%, and superior sales densities in the new stores. 

However, the company’s sugar business suffered a drastic downturn, with revenues falling by 22% year-on-year (17% down at constant currency) to £2.08bn. Adjusted operating profit for the division plunged by 56% to £189m.

ABF stated “Revenue and adjusted operating profit for AB Sugar were substantially lower than last year driven by declining sugar prices, lower volumes and adverse currency translation. 

“The price and volume effects were predominantly seen in Europe where prices were driven down by increased market competition as our competitors seek to establish new market positions ahead of the removal of quotas in 2017, and by a desire to reduce quota stock levels across the EU which have been higher than normal.”

It added that the world sugar price remained low and fell further throughout the year, though it considers the current sugar price to be “unsustainable given that it is markedly below the global average cost of production”.

There was better news for ABF’s recovering grocery division. Although revenues were down (6% reported, 1% constant currency), adjusted operating profit improved by 20% and margin rose to 8.1% from 6.3%.

ABF said Twinings Ovaltine delivered strong revenue growth in tea, while revenues and profit at Allied Bakeries and at Jordans and Ryvita were ahead of last year. However, Silver Spoon’s revenue and profitability was well below last year reflecting an “especially competitive year for the UK packed sugar market” which included the loss of a number of key contracts.

ABF chairman Charles Sinclair commented: “The financial year was characterised by price deflation in many food commodities and a strengthening of sterling against our major trading currencies. The impact of this is evident in the lower revenues of our food businesses and, in this context, the profit growth in grocery, agriculture and ingredients is all the more impressive.”

The company said the improved performance in grocery, ingrediants and agriculture would continue in 2015 as would Primark’s expansion.

However it warned of further problems in its sugar division, predicting: “With the continuing fall in EU sugar prices, and volatility in the world sugar price, we expect a further large reduction in profit from AB Sugar, but this will put much of the effect of the structural changes in EU prices behind us. 

“At this early stage we expect a marginal decline in adjusted operating profit for the group but the impact on earnings will be mitigated by much lower tax and interest charges.”

ABF shares rose by 3.4% to 2,761p in morning trading.