24th Feb 2020 08:32
(Alliance News) - Associated British Foods PLC on Monday said it expects to progress in its half-year results, helped by a sales rise at its Primark retail arm, which is yet to experience any short-term pain from the coronavirus outbreak.
AB Foods said it built inventories before the Chinese new year, when the virus initially spread through Wuhan. The risk of supply shortages could be prevalent towards the end of the financial year however, AB Foods cautioned, if delays to factory production continue.
AB Foods said its AB Mauri, which is the company's baking arm, AB Agri and Ovaltine factories in China are operating at reduced capacity due to labour and logistics constraints as a result of the coronavirus.
"We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions," AB Foods said.
The company, which ends its first half on February 29, expects growth in sales and adjusted operating profit to rise from GBP639 million in the year prior. However, on a reported basis, the dilutive effect of the adoption of accounting standard IFRS 16 on earnings will result in a "small reduction in adjusted earnings per share in the first half".
AB Foods said it has adopted IFRS 16, an accounting standard governing the financial treatment of leases.
AB Foods added: "We expect strong growth in adjusted operating profit in the second half, driven by profit growth for Primark and a second half weighting of the AB Sugar profit recovery. As a result, our outlook for the full year for the group is unchanged with progress expected."
At Primark, first half sales are tipped to come in 2.5% higher year-on-year, and up 4.2% at constant currency. Like-for-like sales are flat, the company said.
Margins are expected to decline year-on-year and AB Foods warned that on a lease-adjusted basis, Primark's "operating profit is expected to be marginally down" year-on-year.
On a reported basis, Primark's first half operating profit will be ahead of the prior year.
UK Primark sales are expected to be 3.0% higher, with eurozone sales rising 5.3% at constant currency, helped by growth in France, Belgium and Italy. First half like-for-likes in the UK are forecast t decline by 1.3%, however.
"Our business in the US continued to perform strongly, delivering like-for-like sales growth, with particularly strong trading at the store in Brooklyn. Together with the contribution from the planned store openings at American Dream, New Jersey and Sawgrass Mills, Florida, we expect a much-improved operating result for the year," AB Foods added.
The company expects to open 900,000 square feet of selling space in financial 2021, with new stores opening in places like Manchester, New Jersey, Strasbourg, Paris, Rome, Barcelona and Berlin.
Higher European Union sugar prices mean that AB Foods expects Sugar revenue to rise year-on-year. Agriculture and Ingredients revenue are also expected to rise year-on-year.
In the Grocery unit, which contains Kingsmill, the bakery products chain and the Silver Spoon sugar brand, interim revenue is expected to be in line with last year at a constant currency basis.
At the start of February, the was a blaze at the company's Wakefield Speedibake factory in Yorkshire, causing "significant damage".
"The site was safely evacuated, and we have comprehensive insurance for property damage and business interruption," AB Foods said.
Shares in the company were down 1.6% at 2,542.00 pence each in London on Monday morning.
The company will report its interim results on April 21.
By Eric Cunha; [email protected]
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