AB Foods maintains full-year guidance; sees FY Primark sales up 5.5%
Associated British Foods reiterated its outlook for the year on Monday as it said a strong performance from Primark, grocery, agriculture and its ingredients business should more than offset the impact of lower EU sugar prices, but warned it would take a £20m hit from the stronger pound.
Associated British Foods
2,671.00p
16:40 03/05/24
Food Producers & Processors
8,125.63
16:54 03/05/24
FTSE 100
8,213.49
16:59 03/05/24
FTSE 350
4,515.50
16:54 03/05/24
FTSE All-Share
4,469.09
17:14 03/05/24
AB Foods said that with two thirds of its operating profit earned outside the UK, the strengthening of the pound against most of its trading currencies, other than the euro, will result in a loss on translation of around £20m for the year.
The company expects sales at Primark to have risen 5.5% at constant currency from the previous year, driven by increased selling space, offset by a 2% drop in like-for-like sales. At actual exchange rates, sales are expected to be 6% higher.
The group opened a new Primark store in Brooklyn in July, which is its ninth store in the US. It said it continues to optimise its US operating model and, as previously advised, selling space was reduced at existing stores in Freehold and Danbury in May 2018.
"We have been encouraged by the trading of these stores and the consequent benefit to store profitability," it said.
Revenues in the grocery segment are expected to be ahead of last year, along with adjusted operating profit, driven by growth in Twinings Ovaltine, improved margin at George Weston Foods and the first year of contribution from Acetum. AB Foods said Ovaltine revenue growth was especially strong, led by the brand's largest markets of Thailand and Switzerland.
In the sugar business, meanwhile, revenue and adjusted operating profit are expected to be "well down" on last year, namely due to significantly lower EU prices adversely affecting AB Foods’ UK and Spanish businesses. However the profitability of its African business, Illovo, will be maintained.
Revenues at the agricultural division are seen "well ahead" of last year, with growth in all businesses and a consequent increase in operating profit.
The company’s ingredients business will see revenues rise, while operating profit will again be "well ahead" with a further increase in margin.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "ABF’s pre-close trading update is a bit like a Saturday afternoon in Primark - confusing, but with some gems hidden among the clutter.
"At first glance the decline in like-for-like sales at Primark is a concern, but with numbers in positive territory in the more mature UK market, we’re not too concerned. New store openings should keep sales figures moving forwards on the continent, and Primark’s position in many of these markets is relatively underdeveloped."
Results from the sugar business aren’t great, but that was largely expected. Outside the European market, where an end to sugar quotas has seen prices crash, the group is making good progress, while Groceries seems to be delivering some pretty attractive numbers following the purchase of Balsamic company Acetum earlier In the year."
Hyett said investors will have to wait until November for the detail of the full-year numbers, particularly on margins, but early signs suggest a cautiously positive statement.
"At a time when the rest of the high street seems to be stumbling from one crisis to another, that’s not to be sneezed at."
At 0930 BST, the shares were down 2.3% to 2,218p.