23rd Jan 2024 12:46
(Alliance News) - Associated British Foods PLC reassured on Tuesday, backing its outlook in the face of tough market conditions and the potential for shipping disruption due to the ongoing conflict in the Red Sea.
Shares in the company were 1.9% higher at 2,310.00 pence each in London on Tuesday afternoon.
The Primark owner predicted little if any disruption from events on the Red Sea, giving it confidence to affirm its margin guidance.
Back in November, it predicted Primark would achieve an adjusted operating profit margin "above 10%", with a possibility of a more robust outturn depending on consumer demand. It would be a step up from the 8.2% achieved in financial 2023.
AB Foods sales in the first quarter ended January 6 rose 2.8% on-year to GBP6.89 billion. At constant currency, they expanded 5.4%.
In Retail alone, which houses Primark, sales were 7.3% higher on a year earlier at GBP3.38 billion. They rose 7.9% at constant currency.
"In the UK, total sales in the period rose by 4.5% with like-for-like sales up by 3.8%. Following the period's early warm weather challenges, sales grew strongly in the run-up to Christmas. Primark's market share reached a new record at 7.1% for the 12 weeks to 10 December, up 0.1 percentage point from last year," AB Foods said.
"We exited the period with stock levels in a good position. We continue to monitor the situation in the Red Sea but at this stage we do not expect any significant disruption to our supply chain."
On Primark, AB Foods said it feels "more confident" on its adjusted operating margin delivery for the full-year. AB Foods said the unit's gross margin has picked up.
Barclays lifted its Primark margin outlook for the current financial year.
It upped its financial 2024 adjusted operating margin prediction by 30 basis points to 10.6%. For financial 2025, it expects margin growth to 11.2%.
"This margin rebuild would be in line with management's view that Primark margins can return to historic levels of profitability which was more in a 10-13% range. Clearly if Primark was able to deliver higher volumes than budgeted for in H2-24 and no big Red Sea freight impact, 2024 margins could
already be 11%. It would seem to us that management have at least 50bp of margin 'wiggle room' for 2024," Barclays analysts added.
Away from Primark, the FTSE 100 listing's performance was slightly mixed, however. Overall sales in its Ingredients and Agriculture arm declined, though they climbed in Grocery and Sugar.
Grocery sales rose 1.8% on-year in the first quarter to GBP1.41 billion, registering a 5.4% climb at constant currency. Its grocery unit includes the Kingsmill baked goods products range and Twinings tea.
Ingredients sales fell 2.8% at actual currency to GBP698 million. They edged up 0.9% at constant currency, however.
Agriculture sales slumped 12% on-year to GBP572 million, or 11% at constant currency. Sugar sales were 3.8% higher at GBP825 million, registering a more convincing 13% rise at constant currency.
AB Foods said: "Our Grocery business performed well. Our US-focused brands, including our Stratas joint venture in edible oils, continued their strong performances from last year. Within international brands, Twinings traded well across its key markets. Ovaltine had a strong performance in Western Europe but was weaker overall as it continued to face challenges in Asia.
"In Ingredients, our yeast and bakery ingredients business AB Mauri also maintained the strong performance of last year with further growth in sales and profit. As expected, parts of ABF Ingredients were softer due to continued customer destocking. In Agriculture, sales were weaker although certain of the compound feed markets are beginning to show signs of recovery."
The company expects sugar production to be "significantly above last year despite the recent weather".
"This should bring production more broadly into line with historical production levels," it added.
By Eric Cunha, Alliance News news editor
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