8th Nov 2022 11:38
(Alliance News) - Associated British Foods PLC on Tuesday said sales at its Primark store chain are now back to their pre-pandemic level, but cost inflation has eaten away GBP1 billion from profit so far this year.
Despite the "most challenging" trading conditions in a long time, AB Foods increased its dividend and launched a share buyback to return cash to investors.
AB Foods said revenue for the financial year that ended September 17 climbed 22% to GBP17.00 billion from GBP13.88 billion a year prior. Pretax profit jumped 48% to GBP1.08 billion from GBP725 million. Operating costs rose 21% to GBP15.73 billion from GBP13.00 billion.
"Group revenue and profit were much stronger this year than last, demonstrating that our businesses have emerged robustly from the disruption of the pandemic. But just as we began to experience a more normal operating environment, we encountered the most challenging economic conditions for many years with sharply rising and broadly based inflation, as well as highly volatile input costs and exchange rates. We estimate that inflation increased costs across the group by some GBP1 billion in this year alone," said Chair Michael McLintock.
AB Foods upped its payout by 7.9% to 43.7 pence from 40.5p. In addition, it announced a GBP500 million buyback programme to be completed in the current financial year.
At Primark, a discount fashion retailer, annual sales totalled GBP7.7 billion, up 43% at constant currency.
"UK like-for-like sales and market shares now broadly in line with pre-Covid levels," AB Foods said about Primark.
Primark is facing rampant cost inflation, however.
AB Foods Chief Executive George Weston said: "We have decided to hold prices for the new financial year at the levels already implemented and planned and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates. As a result, in the current financial year, we expect significant growth in group sales from pricing in Food, as well as from some pricing and from space expansion at Primark. Our outlook remains unchanged. We continue to expect group adjusted operating profit and adjusted earnings per share to be lower than the financial year just closed."
In the Food businesses, sales rose by 10% thanks to price increases, with adjusted operating profit in the Sugar, Agriculture and Ingredients divisions ahead of the year before.
In Grocery, the largest of the Food businesses, adjusted operating profit declined by 4.3% despite a 4.0% rise in sales, as adjusted operating profit margin narrowed to 10.7% from 11.5% due to a lag in passing in cost increases to customers.
AB Foods said its outlook for the full year remains unchanged, continuing to expect "significant" growth in sales, while adjusted operating profit and adjusted earnings per share are expected to be lower than in the just posted financial year 2022.
Neil Shah at research house Edison said it was "a positive set of results" on Tuesday, but Primark in particular faces significant challenges from input cost inflation.
"Going forward, Primark's business model will come under increasing stress as the group attempts to avoid raising prices where possible whilst combating rising input costs and a difficult macroeconomic environment," Shah said.
AB Foods shares were 4.3% higher at 1,490.00 pence each in London on Tuesday morning, but are down 20% over the past 12 months.
Shore Capital kept its 'buy' rating on the FTSE 100 stock, saying it is undervalued.
"In a world where we continue to worry about the current and potential impact of war, we see food security as more, not less important and, as such, robust underlying equity value for ABF's food operations," explained analysts Clive Black and Darren Shirley.
"Correspondingly, Primark has, unfortunately for us, come to dominate the ABF narrative, which in terms of market hyperbole can take the group's share to high value places. That is not, however, how the market views Primark at the moment, with its lack of digital transactional capability, potential exposure to weak demand in recession and gross margin pressure if the currency increases the business' [cost of goods sold] and markdown also ensues."
By Tom Budszus; [email protected]; and Tom Waite; [email protected]
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