January 18, 2018 / 7:50 AM / a year ago

UPDATE 2-AB Foods' sugar outlook soured by lower EU prices

* Decline in full year sugar profit to be larger than forecast

* Group still expects progress in overall full year earnings

* Primark sales up 7 pct in Christmas quarter (Adds finance director, analyst comment, shares)

By James Davey

LONDON, Jan 18 (Reuters) - Associated British Foods warned on Thursday that revenue and profit from its sugar business would fall more than previously forecast in 2017-18 because of lower prices across the European Union, sending its shares lower.

But the group said that sales growth in its other businesses — including the 350-store Primark fashion chain, as well as grocery, agriculture and ingredients — enabled it to maintain its overall forecast for what it termed progress in operating profit for the year to mid-September 2018.

“That sugar decline is offset by better trading elsewhere but also lower interest and a better tax rate,” Finance Director John Bason told Reuters.

Shares in the group, majority owned by the family of Chief Executive George Weston, were down 3 percent at 0945 GMT.

In November AB Foods had cautioned that in sugar, higher volumes and lower costs would only partially mitigate the effect of much lower EU prices in 2017-18.

On Thursday the group forecast a sugar revenue and profit decline greater than indicated in November, primarily as a result of significantly lower EU prices, which hit its British and Spanish businesses. Prices were dented by substantially higher EU sugar production.

“It’s supply and demand...It was a lovely summer and the beet just carried on growing,” said Bason.

Analysts at Barclays cut their 2017-18 forecast for profit from sugar from 184 million pounds to 151 million pounds. AB Foods made 223 million pounds from sugar in 2016-17.

In the 16-weeks to Jan. 6, AB Sugar’s revenue fell 12 percent at constant currency.

Group revenue for period rose 4 percent at constant currency rates.

PRIMARK GROWTH

At Primark, the discount fashion chain which accounts for about half of group revenue and profit, sales rose 7 percent on a constant currency basis, driven by new store openings.

In Britain, which contributes about half of Primark’s revenue, the retailer reported strong like-for-like sales growth and market share gains.

Barclays estimated the like-for-like sales rise at close to 4 percent - well ahead of Christmas sales updates from British rivals Marks & Spencer and Next.

However, Primark’s sales growth across mainland Europe was held back by unseasonably warm weather in October. It said trading in the United States had continued to make progress.

Primark’s operating margins in the first half were now expected to be close to those in the same period last year.

Britons, under pressure from slow wage growth, compounded by higher inflation in the wake of the 2016 referendum vote to leave the EU, cut back in the run-up to Christmas, company updates and survey data this month have shown.

However, most analysts regard Primark as well positioned to withstand the pressure on discretionary spending.

“The data would say that for UK consumers their disposable income has been tightened...But to just simply attribute (Primark’s UK growth) to that would be wrong,” said Bason.

“We’ve got great stuff in there and we’re really good at engagement with our customers with social media and digital.”

Prior to Thursday’s update analysts average EPS forecast for 2017-18 was 135.6 pence, according to Reuters data, up from 127.1 pence in 2016-17. (Editing by Kate Holton and Keith Weir)

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