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Trading update

Associated British Foods plc today provides an update on trading during the second half of the financial year which will end 14 September 2024. 

References to sales growth in the following commentary are based on constant currency and are in comparison to the same period in the prior year, except where stated. 

 

George Weston, Chief Executive of Associated British Foods, said: 

“The  Group  has  continued  to  perform  well  in  the  second  half,  delivering  good  topline  growth,  a  significant  improvement  in  profitability  and  excellent  cash  generation.  While  the  British  weather  was  not  in  Primark’s favour this summer, robust growth in other markets and new store openings have driven good sales overall. Strong margin delivery is enabling increased investment in our product, digital and brand initiatives. Grocery and Ingredients have also grown well in the second half, in line with our expectations, and we will continue to build on  this  momentum.  Sugar  profitability  this  year  remains  ahead  of  FY23,  however,  it  is  below  our  previous  expectations.  This  is  due  to  a  sharp  fall  in  European  sugar  prices  which  is  now  expected  to  impact  Sugar profitability in FY25 before recovering in FY26. 

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.” 

Retail 

Primark  revenue growth  is  expected  to  be around 4%  in H2,  driven by a  strong  sales contribution  from  our  continued store expansion programme. Like‐for‐like sales are expected to decrease by around 0.5% in H2, with growth of 0.2% in Q3 and a projected decline of around 0.9% in Q4. This primarily reflects unfavourable weather in the UK and Ireland in H2, which resulted in lower footfall and particularly impacted sales of our seasonal lines in womenswear and footwear. While volumes were soft during H2, the average selling price increased as a result of  mix.  We  are  benefiting  from  the  relevance  and  breadth  of  our  product  ranges,  including  licensing  and  collaborations, as well as increased digital engagement with our customers. Markdown in the period has been managed effectively and we expect to exit the year with good inventory levels. 

In the UK in H2, sales are expected to be around 0.5% lower, with like‐for‐like sales expected to decrease by around 2.0%. The like‐for‐like decline was 0.6% in Q3 and is projected to be around 3.1% in Q4, with footfall impacted by challenging weather, particularly in April and June. Primark’s market share1 decreased slightly to 6.5% in the 24 weeks to 21 July 2024 reflecting the lower high street footfall. We continued to expand and optimise our store portfolio in the UK, opening two new stores, extending two existing stores and re‐locating two stores during the period.  

In Europe excluding the UK, sales growth is expected to be around 5% in H2, with a strong contribution from space expansion. Most markets in Europe have delivered strong growth in H2, including Spain, France and Italy. Like‐for‐like sales growth is expected to be around 0.9% in H2, with growth of 1.1% in Q3 and projected growth of around 0.7% in Q4. Most countries traded well with good like‐for‐like performances, although the like‐for‐like sales measure in France and Italy was impacted by the high number of store openings in the prior year. Germany and the Netherlands both performed particularly well. Ireland was a notable exception, with weather‐impacted performance more in line with the UK. There were eight new store openings during the period: three in Spain, two in Italy, one in Ireland, one in Romania and our first store in Hungary.    

We continue to make good progress in the US. Sales growth is expected to be around 25% in H2. Recently opened stores are performing well and we opened three new stores in the period. Primark also launched its first US marketing campaign in the New York area as we focus on driving increased brand awareness with US customers.  

As part of our continued market expansion, we have signed an agreement with the Alshaya Group to explore the opportunity to open stores in the Gulf Cooperation Council (‘GCC’) markets.  

Overall, our outlook for adjusted operating profit for Primark in FY24 is unchanged. Our margin delivery has been strong in H2 and we now expect adjusted operating profit margin for the full year to be a little over 11.5%. The significant margin recovery in H2 FY24 compared to H2 FY23 reflects an increase in product gross margin, largely due to lower material costs, reduced realised freight costs and foreign exchange improvement. These benefits  are  being  partially  offset  by  labour  cost  inflation  and  increased  investment  in  digital  and  data  capabilities, technology and brand marketing.  

Grocery  

Grocery has continued to perform well and we expect sales growth to be around 3% in H2, reflecting good demand for our leading international and regionally‐focused brands. 

Our  international  brands  have  delivered  good  growth,  underpinned  by  upweighted  investment  in  effective  marketing. Twinings has maintained strong sales momentum in its largest markets including the UK, US and France,  reflecting  increased  distribution,  strong  commercial  execution  and  new  product  launches.  Ovaltine  delivered continued growth in Europe in H2 and an improved performance in Thailand.  

Within our regionally‐focused portfolio, our US‐focused brands performed well in H2, reflecting the strength of our brands and increased capacity. As expected, the strong profitability during FY24 has begun to normalise in Q4. Our UK‐focused brands have generally performed well in H2. Our Australia and New Zealand‐focused brands have  remained  resilient  in  a  challenging  consumer  environment.  During  the  period,  we  completed  the  acquisition  of  The  Artisanal  Group,  a  leading  manufacturer  and  wholesaler  of  high‐quality  baked  goods  in Australia, primarily serving cafes, restaurants and hotels. 

Overall, we expect Grocery profitability in H2 to be slightly ahead of our previous expectations and now in line with H2 FY23.  

Ingredients  

Ingredients sales have continued to grow well in H2. Our yeast and bakery ingredients business, AB Mauri, has performed  strongly,  with  good  growth  across  most  regions.  Overall,  our  portfolio  of  speciality  ingredients  businesses, focused on enzymes, precision extraction, health and nutrition and pharmaceutical delivery systems had an encouraging performance after a period of customer destocking.  

We  continue  to  grow  our  presence  and  capabilities  in  ingredients  through  strategic  acquisitions.  In  H2,  we  completed  the  acquisition  of  Omega  Yeast  Labs  LLC,  a  leading  provider  of  liquid  yeast  to  the  craft  brewing industry in the US, complementing our existing portfolio of speciality yeast products. We also completed the acquisition  of  Mapo,  an  Italian  manufacturer  of  premium  frozen  baked  goods,  underpinning  the  growth  potential for our Scrocchiarella dough products. 

Overall, we expect Ingredients profitability to remain strong in H2, in line with our previous expectations.

Sugar 

The performance of our Sugar business has been mixed. Overall, we expect Sugar to deliver adjusted operating profit of approximately £200m, which is still strongly ahead of last year but, due to a reduction in European sugar pricing, lower than previously anticipated.    

Europe was challenging overall in H2. Production levels have been strong, benefiting from the return to a more typical sugar beet crop in the UK. However, we have seen sharper than expected falls in UK and European sugar pricing  due  to  increased  supply  in  the  market.  As  a  result,  both  of  our  European  Sugar  businesses  have  experienced a negative impact to sales and profitability in Q4.  

On a constant currency basis, our overall African sugar business has grown well in H2. We have had a strong performance in Zambia and South Africa, whereas in Malawi and Tanzania, high rainfall has impacted sugar cane yields and production this year. In Tanzania, this has led to unexpectedly high volumes of sugar imports and lower prices. On an actual currency basis, our African sales are expected to decline in H2 due to the impact of foreign exchange translation.  

The operational performance of Vivergo, our bioethanol plant in the UK, has continued to strengthen in H2 albeit the margin has continued to be mixed during the period.     

Agriculture 

Agriculture sales are expected to decrease slightly in H2 due to continued soft demand for compound feed in the  UK  and  China.  Our  speciality  feed  and  additives  businesses  and  our  dairy  business  are  performing  well.  Frontier, our JV focused on grain trading in the UK, has been impacted by prolonged wet weather. Overall, we expect profitability for the full year in FY24 to be broadly in line with last year. 

 

Financial year 2025 – initial view 

The  Group  is  well  positioned  for  further  strategic  progress,  supported  by  strong  cash  generation  and  good  momentum in Retail and most of our food businesses. 

We expect Primark to deliver good sales growth in FY25 as we continue to execute our store rollout programme and our product, digital and brand initiatives. We expect adjusted operating margin in FY25 to remain broadly in line with this year’s level, as gross margins stabilise and we step up investment in strategic initiatives to drive sustainable growth.    

In Grocery, we will continue to drive sales momentum, underpinned by increased marketing investment. We expect to see the full year effect of the profit normalisation in our US‐focused brands.   

In Ingredients, we expect continued growth in yeast and bakery ingredients and improved growth in speciality ingredients. 

In Sugar, we expect the reduction in pricing seen in Q4 FY24 to significantly impact performance in our European sugar business next year, with operating profit for the overall segment now expected to be in the range of £50m to £75m in FY25. However, we expect profitability to recover in FY26 to be more in line with FY24, as a result of the lower beet prices that have been contracted and a rebalancing of supply and demand in the market. 

In Agriculture, we expect some improvement, particularly as our grain trading business recovers in the UK. 

Share buyback 

In  August,  we  completed  our  second  £500m  share  buyback  programme.  Given  the  expected  strong  cash  generation this year, we intend to extend this programme by an additional £100m, which we expect to complete around the time of our annual results announcement on 5 November 2024. We will provide a detailed update on our capital position at that time. 

Full year results  

We are scheduled to announce our preliminary results for the 52 weeks to 14 September on 5 November 2024. 

 

1. Kantar, Primark market share of the total UK clothing, footwear and accessories market including online by value, 24‐week data to 21 July 2024.

 

For further information please contact:

Associated British Foods:

+44 20 7399 6545

Eoin Tonge, Finance Director

Lucinda Baker, Head of Investor Relations

Chris Barrie, Corporate Affairs Director 

Citigate Dewe Rogerson:

+44 20 7638 9571

Jos Bieneman +44 7834 336 650

Angharad Couch +44 7507 643 004 

An investor and analyst call will be held at 08:30 today, Tuesday 5 September 2024. All participants must pre-register to join this conference using the Participant Registration link below. Once registered, an email will be sent with your unique Registrant ID.  Please register via participant registration link.

Trading Update

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