Associated British Foods forecast 'meaningful progress' in its new financial year, driven by a strong recovery in the margin of its Primark fashion business thanks to lower material and freight costs, and a big improvement in its sugar business.
The group, which reported profit growth of 5% for 2022/23, anticipates further growth in Primark's sales in the 2023/24 year, driven by some one-million square feet of new retail space and 'modest' levels of like-for-like sales growth.
It said lower material and freight costs should result in a 'substantial recovery' in Primark's gross margin. Overall, it expects Primark's adjusted operating profit margin to recover strongly from the 8.2% made in 2022/23.
'At this early stage we believe that the adjusted operating profit margin will be above 10% with further improvement dependent on levels of consumer demand,' it said.
AB Foods, whose shares have risen 34% so far this year, forecast a stable 2023/24 performance from its grocery business, which includes Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks.
It forecast a 'substantial improvement' in profit in its sugar business and progress in agriculture, but a modest decline in sales and profit in its ingredients division.
'Whilst the environment is still challenging for the consumer, inflationary pressures have eased and there is less volatility than there was 12 months ago. The group is well positioned as a result,' AB Foods said.
For the year to 16 September 2023, it made an adjusted operating profit, its key profit measure, of £1.51 billion ($1.86 billion), up from the £1.44 billion made in 2021/22. Revenue rose 16% to £19.75 billion.
Primark's adjusted operating profit fell 3% to £735 million.
The group announced an additional share buy back of £500 million after concluding a programme of the same amount last month. The total dividend, including a special, rose 37%.