Associated British Foods has forecast second-half profits ‘substantially ahead’ of last year – boosted by a bumper sugar harvest.
The Primark-owner and maker of Kingsmill bread said profits from the sugar division would be considerably higher this year. Grocery revenues would also be higher thanks largely to the strong international performance of Twinings Ovaltine.
However, ABF said high levels of promotional activity had reduced margins for Kingsmill baker Allied Bakeries – which it added would be put under further pressure by the recent increase in wheat costs.
It also warned of a £100m impairment charge related to the struggling Australian meet business.
Investec analyst Martin Deboo said Australia was a “continuing embarrassment” for ABF, adding that the update suggested full-year results would be a little short of its expectations.
Bernstein analyst Andrew Wood was more upbeat. “We expect second half operating performance to be strong, driven by continued exceptional performance in Sugar and a strong recovery in Primark margins as lower cotton costs flow through the profit and loss. We believe our estimates are supported by today’s trading update,” he said.