Associated British Foods shrugged off a damp UK summer and sharp drop in sugar prices at the end of the year to deliver annual profitability above expectations.
Adjusted operating profits for the year to 14 September rose 33% to £2bn, while pre-tax profits were ahead of analyst expectations at £1.9bn, a year-on-year increase of 43%. Revenues increased 2% to £20.1bn in the 52 weeks to 14 September, with sales at Primark up 5% to £9.4bn.
This was despite the poor summer weather hitting performance in its flagship Primark retail chain during the crucial summer trading period.
ABF admitted seasonal summer clothing was impacted by wet weather in the UK, but the chain grew overall sales thanks to its strong international performance across the US, France, Spain, Italy and central and eastern Europe.
Additionally, the chain saw a strong rebound in margin from 8.2% to 11.7%, due to annualised price increases amid lower material and freight costs. The margin improvement underpinned a 51% rise in underlying operating profits.
ABF also posted “good growth and strong profitability” in the food division.
Grocery sales grew 4% to £4.2bn, driven by core brands and a step-up in marketing. Meanwhile, adjusted operating profit margin improved to 12.1%, helping profits jump 14% to £511m. This was driven by easing input cost pressures, strong performance in the US and “much-reduced” losses in its Allied Bakeries business.
One blot on the landscape is its sugar division, which is expected to more than halve in profitability next year due to the fall in European sugar prices. However, last year its sugar sales and profitability had delivered a strong improvement.
ABF shares were up 3.2% on the news to hit 2,362p on Tuesday. The stock has now recovered 8% since its heavy downgrade to future sugar profitability, which resulted in a double-digit fall in early September.
“ABF’s results reveal a business where the stars were more aligned,” said Shore Capital’s Clive Black. “Noting the recent sugar disappointment, we are still ongoing supporters of the ABF investment thesis, believing that this well-controlled firm has a sense of purpose, and remains ever more relevant across its assortment.”
Russ Mould, investment director at AJ Bell, commented: “The company has long heralded the benefits of its diversified model, which was important during the pandemic when Primark stores were shuttered. The company’s enviable financial position allowed for some significant generosity to shareholders while still investing for future growth.”
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