Associated British Foods has forecast first-half sales and adjusted operating profit 'strongly ahead' of the previous year and ahead of pre-COVID 19 levels, reflecting an improved performance from its Primark fashion business.
Primark sales for the 24 weeks to 5 March were expected to be well over 60% ahead of last year at constant currency with an operating profit margin of 11%.
The better outcome reflected all Primark stores remaining open and trading throughout the period except for short periods in Austria and The Netherlands.
Effect Of Inflation
AB Foods said the effect of inflation on raw materials and the supply chain in Primark in the first half was broadly mitigated by a reduction in store operating costs and overheads and a favourable US dollar exchange rate. It said in January it would not raise prices for spring/summer.
The group also owns major sugar, grocery, ingredients and agricultural businesses.
It said all its food businesses had experienced increasing inflationary pressures in raw materials, commodities, supply chain and energy.
It has taken steps to offset these higher input costs through operational cost savings and where necessary in grocery, ingredients and agriculture, the implementation of price increases.
However, it cautioned that actions on price inevitably lag input cost inflation.
As a result, it expects some margin reduction in these three businesses at the half year but expects a recovery by the financial year-end.
AB Foods' grocery brands include Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks.
The group expects further growth in profit at AB Sugar at the half year.
AB Foods outlook for the full year was unchanged with 'significant progress' expected in both adjusted operating profit and adjusted earnings per share.
Associated British Foods has minimal direct exposure to Ukraine and Russia, though the group could be impacted if the conflict drives up the global price of wheat, its finance chief.
AB Foods Could Be Impacted By Ukraine Conflict
"In terms of direct trading with Ukraine, it's not that material to the group," John Bason told Reuters after the group updated on trading.
But he noted that AB Foods' grocery businesses, which include Allied Bakeries, use a lot of wheat, mostly from the United Kingdom.
"Ukraine is a big producer of wheat so the world wheat price will react if there are any supply shortages," said Bason.
"It's those secondary effects of volatility in the commodity markets, that's where I think we will likely see some effects."
He said it was too early to say what the scale of any impact would be.