Associated British Foods PLC (LON:ABF) has reported stronger profits and cash levels than its previous guidance after stronger than expected trading in recent weeks in its Primark clothing retail business and food production arms.
All of the FTSE 100-listed group’s discount fashion stores were open in the final quarter of the year, up from 90% at the time of its update in July as the post-coronavirus (COVID-19) lockdown reopening process continued around the world, with sales on aggregate said to have been “encouraging” but 12% lower on a like-for-like basis in the UK, 17% lower in Europe and 9% in the US.
Adjusted operating profit at Primark for the 52 weeks to September 12, 2020, is now expected to be “at least at the top end” of management’s guidance, meaning £350mln, or a fall of 62% compared to the previous year.
Grocery revenues will be ahead of last year and operating profit “significantly ahead”, as supermarket sales have been one area that has thrived during the pandemic, with growth particularly noted at its Twinings tea business, Silver Spoon sugar, Jordans and Dorset Cereals, Ryvita, Acetum balsamic vinegar, while Yumi’s was helped by the launch of a new veggie burger.
Grocery revenues were held back by lower Ovaltine sales and a decline in Allied Bakeries after the loss of a contract, which has led to a £15mln non-cash write-down.
Helped by a strong recovery in EU prices, sugar profits are expected to be “well ahead” of the prior year, agriculture “strongly ahead” and ingredients just “ahead”.
The year-end net cash balance, before lease liabilities, is now expected to be around £1.3bn, up from guidance for £750mln given two months ago, driven mainly by a reduction in inventory levels at Primark and the food businesses.
Having taken a £284mln charge for clothing inventory at its half-year results, the stronger than expected trading over the summer allowed most of this stock to be sold in-store, meaning only around £150mln of spring/summer inventory will be carried into next year.
There was no mention of the dividend, which was put on hold in April.
Shares in AB Foods rose 4% to 2,102p on Monday morning, where they are down around 18% since the start of the year.
Broker Peel Hunt noted that UK LFL sales improve to a decline of 5% if the four largest city centre destination stores are taken out, showing the impact of lower tourist numbers and weaker city centre footfall versus retail parks and the regions, with sales in retail parks up and broadly flat in the regional high streets and shopping centres.
The analysts said “we can see Next reporting similar trends at the forthcoming interims, although with a stronger weighting to recovery online, a channel Primark continues to shun”.
Those at broker Shore Capital said, “we see the update as a positive from ABF, and are encouraged by what appears to be across the board momentum through Q4. We expect to nudge up our FY2020 expectations post today’s update, and also place our FY2021 forecast under review for upward revision.”
–Adds share price and broker comment–