Associated British Foods (ABF) is forecasting revenue and profits to far exceed its pre-pandemic levels, offsetting significant inflationary pressures.
The FTSE 100 company told investors on Monday it expects sales for the 24 weeks to 5 March to surge by ‘well over’ 60 per cent at its Primark outlets on an annual basis.
Revenue at its agriculture and ingredients divisions are also anticipated to be ahead of last year’s levels, though profit margins for these two segments are set to be impacted by price rises trailing growing input cost inflation.
Meanwhile, sales within ABF’s sugar business are expected to expand by over a fifth on the equivalent period last year.
Primark’s owner Associated British Foods said the decision to hand back £121m in furlough cash was because of confidence of a recovery in sales as restrictions on retail eased across Britain
However, ABF revealed Primark had been affected by delays in shipping products, higher raw materials prices, and a slackening in trade following the emergence of the Omicron variant of coronavirus.
Yet the group said this had been counterbalanced by lower store operating costs and a beneficial exchange rate against the US dollar.
And unlike for much of the previous year, the retailer’s stores benefited from remaining open throughout the whole trading period, except for a short spell of closures in Austria and the Netherlands.
As a consequence, the fashion chain’s sales in the UK and continental Europe were ‘well ahead’ of last year, and total sales in both markets are forecast to be 8 per cent and 9 per cent lower, respectively, on their levels two years ago.
Meanwhile, the firm said its AB Sugar subsidiary had been aided by rising prices, partly as a result of weak European sugar stocks, and larger volumes produced by its Spanish and African sugar companies, Illovo and Azucarera.
In addition, it earned greater revenues from its Twinings brand due to higher sales of the milk flavouring drink Ovaltine and the launches of ‘Wellbeing teas,’ and healthy growth at balsamic vinegar producer Acetum.
Sweet growth: AB Sugar was aided by rising prices, partly as a result of weak European sugar stocks, and higher volumes produced by its Spanish and African sugar companies
But sales by its Kingsmill-owned Allied Bakeries subsidiary fell below its levels last year following the decision to end a contract supplying branded and private-label bread to the Co-op’s supermarket retailer.
Yet, thanks to the very strong performances by its Primark and sugar divisions, ABF believes its adjusted operating profits and sales will not just exceed last year’s figures but jump ahead of its levels for the half-year to the end of February 2020.
Laura Hoy, an equity analyst at Hargreaves Lansdown, said: ‘Primark will feel the sting of inflation in the second half, but at that point, price hikes in other parts of the business will be filtering through.
‘The result is management’s unchanged optimism for ‘significant progress’ in underlying profit growth for the full year.
‘Therein lies the benefit of such a highly diverse business. ABF is best known as Primark’s parent, but the group’s also in charge of several other food-related businesses.
‘The structure is a big part of the reason the group was able to come out of the pandemic with very few scars and is a strength that should carry it through the current inflationary environment as well.’
Despite the positive trading update, shares in ABF closed trading 2 per cent down at £19.20 on Monday and have fallen by around a fifth over the last 12 months.
