AB Foods sees 'significant progress' but warns on rising costs; Pays special divi
By Frank Prenesti
Date: Tuesday 09 Nov 2021
(Sharecast News) - Primark owner Associated British foods said it expected "significant progress" in the current year as it reported a rise in annual profits but warned that food prices may have to rise due to increasing costs.
The company reported a 6% rise in pre-tax profit to £725m and declared a special dividend of 13.8p a share. Revenue was flat at £13.8bn.
"We are seeing significant cost increases in energy, logistics and commodities in addition to the impact of widely reported port congestion and road freight limitations. Our businesses are working to offset the impact of these through cost savings. Where necessary, our food businesses will also implement price increases," the company said on Tuesday.
The company said it expected its Primark to deliver improved margins and profit after it was previously hit by store closures during the Covid-19 pandemic.
It now expected Primark sales to rise by at least the estimated £2bn it lost to pandemic-related closures, with adjusted operating margin recovering to more than 10%. Revenue and profit fell 5% and 11% respectively in 2020-21.
"Primark is not immune to the challenges of supply chain, raw material cost and labour rate inflation. However, we currently expect the impact of these to be broadly mitigated by the transaction currency gain arising from the weaker US dollar, improved store labour efficiency and lower operating costs," AB Foods said.
"Although, at this point, the disruption is causing limited availability on a small number of lines, our warehouse inventories give us stock cover on the majority of lines for the important Christmas trading period."
The company added it planned to grow US store numbers to 60 from the current 13 over the next five years. Same-store sales in the US were up 6% year on year, as bricks-and-mortar retailers opened up after coronavirus shutdowns.
Overall, Primark's portfolio is expected to grow to 530 stores from 398, with a focus on the US, France, Italy and Iberia.
"Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much-improved margin and profit next year," said chief executive George Weston.
"We are now intent on expanding our new store pipeline and investing in technology and digital capabilities to continue improving the performance of the business."
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