5th Sep 2024 09:19
(Alliance News) - Associated British Foods PLC on Thursday reported a drop in comparable sales at Primark and warned falling European sugar prices will "significantly impact" the division’s performance in the coming financial year.
In response, shares in the London-based food processing and retail operator fell 3.8% to 2,406.00 pence each in London on Thursday morning. The wider FTSE 100 was up 0.1%.
In a trading update, AB Foods said the performance of its sugar business has been mixed with profit expected to be lower than expected, due to a reduction in European sugar pricing.
The division is forecast to deliver adjusted operating profit of around GBP200 million in the financial year ending September 14, which is still strongly ahead of last year, the firm added. In financial 2023, the sugar unit contributed an adjusted operating profit of GBP169 million, a slight increase from GBP162 million in 2022.
But the reduction in pricing seen in the fourth quarter is likely to "significantly" impact performance in its European sugar business next year, with operating profit now expected to be in the range of GBP50 million to GBP75 million in financial 2025.
Profitability is then expected to recover in financial 2026, and be more in line with financial 2024.
In Europe, trading was challenging, the company said. Production levels have been strong but sharper than expected falls in UK and European sugar pricing due to increased supply in the market has had a negative impact on sales and profitability in the fourth quarter.
There was also a mixed picture at the firm's discount retailer, Primark.
AB Foods said its outlook for adjusted operating profit for Primark in financial 2024 is unchanged but reported a drop in like-for-like sales in the fourth quarter due to poor weather in the UK & Ireland.
Revenue growth at Primark, is expected to be around 4% in the second half, driven by a strong sales contribution from the continued store expansion programme. But LFL sales are expected to fall by around 0.5%, with growth of 0.2% in the third quarter offset by a likely decline of around 0.9% in the fourth quarter.
The bad weather resulted in lower footfall and particularly impacted sales of seasonal lines in womenswear and footwear, AB Foods explained. But while volumes were soft, the average selling price increased as a result of mix.
Margin delivery was strong in the second half and the firm now expects adjusted operating profit margin for the full year to be a little over 11.5%. The "significant" margin recovery compared to a year ago reflects an increase in product gross margin, largely due to lower material costs, reduced realised freight costs and foreign exchange improvement, the firm said.
For financial 2025, AB Foods expects Primark to deliver "good" sales growth with an adjusted operating margin broadly in line with this year's level.
In the grocery unit, profitability in the second half of financial 2024 is expected to be slightly ahead of previous expectations and in line with the same period last year.
Grocery has continued to perform well and AB Foods expects sales growth to be around 3% in the second half, reflecting good demand for international and regionally‐focused brands.
Profitability in Ingredients remained "strong" in the second half, in line with previous expectations, the firm added.
Sales continued to grow well in the division with the yeast and bakery ingredients business, AB Mauri, performing strongly.
In Agriculture, AB Foods expects profitability for financial 2024 to be "broadly in line" with last year.
Chief Executive George Weston said: "Notwithstanding this short‐term volatility in Sugar, we are optimistic about the outlook for the rest of the group, which is well positioned for further strategic progress supported by continued reinvestment for the longer term."
In addition, AB Foods said it would extend its share buyback programme by an additional GBP100 million. This is expected to be concluded by November 5, when the firm will release annual results.
In August, it completed a second GBP500 million share buyback.
By Jeremy Cutler, Alliance News reporter
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