Yahoo Finance FTSE 100: Primark-owner ABF sees profits fall
Shares in Associated British Foods (ABF.L) were trading down nearly 6% on Tuesday morning in London after the company reported a 3% fall in its first-half profit.
The group, which owns fashion retailer Primark as well as sugar, grocery and ingredients businesses, said adjusted operating profit was £684m ($854m) in the six months to 4 March, with revenue up 21% to £9.56bn.
It comes as UK households have reeled in their spending due to inflation and the cost of living crisis.
Despite this, ABF said Primark sales were significantly better than expected due to strong footfall.
In the 24 weeks to 4 March, it said total sales grew by 19% year-on-year to £4.2bn with increases in all markets. Meanwhile, like-for-like sales were 10% ahead of last year due to higher average selling prices and unit volumes.
Adjusted operating profit at the retailer was £351m with a margin of 8.3%.
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ABF said sales in Europe were 18% higher as it benefited from strong performances in Spain, France and Germany.
In the US, where it has 16 shops, total sales rose 11%. ABF said it is planning to open five more US stores in the second half of the year.
For the full 2022-23 year, ABF said it expects adjusted operating profit broadly in line with the £1.44bn made in 2021-22 across its wider business.
Richard Hunter, head of markets at Interactive Investor, said ABF is steering a steady course through the persistent inflationary storms, with Primark remaining a key driver in the group’s recovering fortunes.
“The benefits of the group’s diversified business is also mitigating some of the pressures which wax and wane in any given economic cycle. The Food businesses reported an increase of 23% in revenues and 13% in adjusted operating profit, with a particularly strong showing from the Ingredients unit,” he said.
“This was achieved despite the considerable headwinds generated from lower production in the Sugar business, difficult animal feed markets in the UK and China in the Agriculture arm, and with price increases still lagging inflation in Grocery.”
The group is bearing down on costs, including passing on some of the price increases caused by the inflationary environment to customers.
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“As a result, both net cash and net debt have worsened for the period, although these are expected to be relatively temporary,” Hunter added.
“The lack of a developed online business at Primark also remains on the to-do list, with incremental improvements still being made to the offering.
“However, with group revenues ahead by 21% and with a marginal increase in pre-tax profit, AB Foods has continued its steady but complex route to recovery.”
Russ Mould, investment director at AJ Bell, said that whilst headline figures show strong revenue, investors will be focused on guidance for the future.
“On this front, there is enough cautious news to drive Associated British Foods’ share price down.
“Management is worried about the impact of high inflation and higher interest rates on the consumer and so it is guiding for slower growth at Primark. It also says margins aren’t going to improve near-term, which will disappoint many people.”
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