Another year of good cash generation for Associated British Foods
Staff Writer |
Associated British Foods issued an update prior to entering the close period for its full year results, 53 weeks to September 17, 2016, which are scheduled to be announced on November 8, 2016.
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The underlying operating performance of the group has been ahead of company's expectation in the second half and the further weakening of sterling during the period since the EU referendum has resulted in a translation benefit.
With no material transactional effect in the period, as a result of forward currency purchases and fixed contracts, company's expectation for the full year results is now for earnings per share to be marginally ahead of last year.
Operating profit for the group will now be ahead of last year. The net interest expense will be similar to last year with the benefit of a lower average level of borrowings up to the point of acquiring the Illovo minorities being offset by an adverse translation impact on non-sterling interest. The underlying tax rate is expected to be close to last year.
These results expectations take into account a change in company's accounting policy for the valuation of Illovo’s sugar cane roots in line with an amendment to IAS 41 which now permits the valuation of such assets at cost less accumulated depreciation.
This has the effect of reducing the year’s operating profit by £8m in the current year, with a restatement of the adjusted operating profit for 2015 to reduce it by £10m to £1,082m. Last year’s adjusted earnings per share have been restated to 101.5p.
As noted in company's last trading update, if current sterling exchange rates continue they will have both positive and negative effects on the group’s operating profit next year.
There would be an adverse transactional effect on the profit margin on Primark’s UK sales, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK.
The last quarter has seen a marked decline in UK long-term bond yields which are used to value defined benefit pension obligations for accounting purposes. At these levels we expect a year end deficit on the group’s UK pension scheme of some £200m compared to last year’s small surplus.
This will result in an increased service cost and a higher interest charge next year. There will be no changes on a funding basis until the next triennial valuation which is due in 2017.
This has been another year of good cash generation after funding higher capital expenditure both for Primark and the food businesses. Year end net debt is expected to be a little higher than last year end after the purchase consideration of £245m for the Illovo minority buyout and a negative translation effect on non-sterling denominated borrowings.
At constant exchange rates, Grocery revenues are expected to be marginally ahead of last year with a good underlying performance. They include the benefit of a 53rd week but were again held back by commodity price deflation
Operating profit at constant currency will be higher than last year with a further improvement in margin. Revenue and profit will both benefit from favourable currency translation. ■