International food, ingredients and retail group Associated British Foods (LSE: ABF) reported a solid set of results for 2014 this morning, but shares barely budged as management warned profits would likely be flat next year.
The company reported an earnings per share increase of 30% for 2014, although this was largely driven by last years one-off cost of sale and closure of business charge that impacted 2013 profit.
The EPS gain flattered a 1% revenue growth and 2% operating profit growth, both at constant exchange rates (CER). Management proposed a final dividend of 24.3p, resulting in a full-year increase of 6% covered more than three times by earnings.
Management pointed to a weak performance from AB Foods Sugar business to account for the lacklustre performance and predicted stall in growth. The department, which generated 37% of operating profits in 2013, struggled to maintain margins in the face of structural changes to the European sugar market and a low world sugar price. High stocks of sugar in the EU and intensifying competition knocked the departments return on average capital employed from 23.3% last year to 10.5%, losing the company 245m. Management were not fazed by the poor performance, stating:
AB Sugar has risen to challenges of this nature before, and does so this time with a programme of continuous performance improvement. We are one of the most efficient producers in the EU and will continue to take the necessary action to ensure that we are well placed to operate in the post-quota environment.
All other business segments reported increased operating profits, with fashion retailer Primark leading the charge. It reported a 30% increase in profits at CER and continued its rapid expansion with 28 new store openings across Europe. The company invested 691m across its business in 2014, with the largest tranche being assigned to Primark. The retailer now operates in nine countries and reported sales close to 5bn. It experienced a further expansion of margins, and management expect progress to continue into 2015 and beyond.
The Agriculture segment reported an 11% increase in adjusted operating profit on the back of strong growth in AB Vista, Specialty Nutrition and Frontier.
The smaller Ingredients business also had a good year, reporting a recovery in profits from 5m to 41m, driven by progress across all regions for AB Mauri and the absence of restructuring and accelerated depreciation charges experienced last year.
Grocery increased profits at an impressive 24% at CER with Twinings Ovaltine taking record market share in its top markets, Allied Bakeries growing both revenue and profits and George Weston Foods experiencing a significant jump in performance through cost reduction initiatives and improved procurement.
AB Foods reported net debt of 358m, down from 446m last year. Management saw little opportunity for earnings growth in 2015, but said we have every reason to be confident of further progress for the group thereafter.
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