(Alliance News) - Associated British Foods PLC said Thursday it expects to report a strong performance for its current financial year through a mix of price and volume increases in its Food business and Primark benefitting from the lifting of Covid restrictions.
However, shares in AB Foods dropped as it warned of a lower profit in the next financial year, as Primark expects a squeeze in margins owing to a hike in costs.
Shares in AB Foods were down 7.6% at 1,344.50 pence on Thursday morning in London, the worst blue chip performer. The group will publish its annual results on November 8.
For the 52 weeks ending September 17, the London-based clothing, homeware and food retailer said in an unscheduled trading update that its outlook remains unchanged, with revenue expected to be "well ahead" of the GBP13.88 billion reported for the year before.
The higher revenue will reflect higher prices and some volume increases from the Food business, particularly in Ingredients. Meanwhile, Primark will benefit from the resumption of more normal customer behaviour and the end of Covid restrictions.
Total Primark sales for the year are expected to come to GBP7.7 billion on a constant currency basis, a 40% rise from the prior year.
Within the Food business, Sugar, Grocery and Agriculture all saw a rise in revenue due to higher market prices for many products.
Adjusted operating profit for the period is also expected to be significantly ahead of the GBP1.01 billion reported the year before, helped by a drop in lower interest rates and lease interest expenses.
In addition, AB Foods said it will review in November whether it has surplus cash and capital available for a possible return to shareholders.
Looking further ahead, however, although the next financial year is anticipated to produce significant sales growth, AB Foods expects adjusted operating profit to be lower compared to the current financial year.
This is mainly due to the commercial decision by Primark to limit further price increases, as well as taking significant action to mitigate input cost inflation and rising energy costs.
"Primark has already been managing the challenges of supply chain disruption, inflation in raw material and energy costs and in labour rates, alongside the higher purchasing costs which have resulted from the strengthening of the US dollar over this financial year against sterling and the euro. To mitigate these pressures, in addition to the price increases mentioned above, there are also plans to improve store labour efficiency and deliver lower operating costs," AB Foods added.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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