ABF food sales strong amid Primark profit hit
ABF’s grocery business saw adjusted operating profit grow by 15% to £437m in the year ended 12 September 2020, with sales up 2% at constant currency rates to £3.5bn.
The manufacturer attributed the success of its grocery business to increased consumer spending during the COVID-19 pandemic.
The increase in demand for eat-at-home and scratch cooking were said to ‘more than offset foodservice declines’. Key brands driving growth included Twinings Ovaltine, Allied Bakeries and Silver Spoon.
Sugar revenues rose by 5% at constant currency rates to £1.6bn, while adjusted operating profit more than tripled to £100m from £30m reported in the previous financial year.
However, Primark – ABF’s clothing retail division – took a hit during the outbreak of COVID-19 thanks to nationwide lockdowns leaving many of its stores closed between March and July. Sales fell 24% to £5.9bn, while operating profit dropped 62% to £362m.
Overall, group sales fell by 12% to £13.9bn compared to the previous financial year, while adjusted operating profit fell by 31% to just over £1bn.
Robust performance
Commenting on the results, chief executive George Weston commended the group’s grocery division and the robust performance of its retail operations.
“Uncertainty about temporary store closures in the short-term remains, but sales since reopening to the year-end of £2bn demonstrate the relevance and appeal of our value-for-money offering,” Weston continued.
“We have the people and the cash resources to meet the challenges ahead and we are investing for the future.”
Research analysts at Shore Capital said ABF’s results were ahead of their expectations, despite the setbacks brought on by the outbreak of COVID-19.
Shore Capital highlighted the strong progress of ABF’s grocery and sugar divisions – the former thanks to greater at-home consumption due to the coronavirus, the latter to cost saving initiatives by the manufacturer.
‘Better than expected’
Clive Black, head of research at Shore Capital, said: “ABF has reported FY [fiscal year] 2020 results a little better than we anticipated, which at the start of October we would have expected to be a spring board for a positive narrative to a much better FY2021 for the group and its share price.”
“However, macro-political and economic uncertainty has increased in recent weeks leaving ongoing forecasting challenge around some consumer facing stocks, notably Primark, less so ABF’s grocery division.”
While the uncertainty surrounding ANF’s retail operations meant Shore’s 2021 forecast of the business was under review, Black said the group remained positive for the medium term.
“ABF has one of the strongest balance sheets in the global consumer arena, something we believe with a conservative management, allows investors to sleep easy at night in challenging times – as a reminder the group had FY2020 cash balances of £1.56bn,” Black added.
