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Increase in selling space underpins Primark performance for AB Foods

By Josh White

Date: Thursday 16 Jan 2020

Increase in selling space underpins Primark performance for AB Foods

(Sharecast News) - Associated British Foods updated the market on its trading for the 16 weeks to 4 January on Thursday, reporting that its outlook was unchanged, with progress expected - on both a reported and an IFRS 16 adjusted basis - in its adjusted earnings per share for the year.
The FTSE 100 conglomerate said group revenue from continuing operations for the period was 4% ahead of the same period last year at constant currency.

It noted that the average exchange rate for sterling against the euro was stronger than at the same time last year, and so sales from continuing operations at actual exchange rates were 3% ahead.

In its retail division ABF said trading at Primark had been "good" in the first quarter.

Sales were 4.5% higher than last year at constant currency, and 3.0% ahead at actual exchange rates.

The board said that sales growth was due "almost entirely" to the increase in selling space, with like-for-like performance also improving, driven by a "marked upturn" in the eurozone.

ABF said Primark operations in the UK also continued to perform well, with sales 4.0% ahead of last year, driven by a strong contribution from new selling space, with a marginal decline in like-for-like sales for the period.

"As a consequence we delivered a further increase in share of the total clothing, footwear and accessories market," the board said in its statement.

"Trading was particularly good over November and December."

Sales in the eurozone were 5.1% higher than last year at constant currency, as a result of the increase in selling space and like-for-like growth, with strong progress reported in France and Italy.

"The improvement in like-for-like sales in the final quarter of last financial year continued.

"At this early stage, there was a notable improvement in Germany."

The US business also delivered like-for-like sales growth in the period.

"As expected, operating profit margin in the period decreased, with the effect of purchases contracted at a stronger US dollar exchange rate than last year but partially mitigated by cost reductions in both the cost of goods and overheads."

Retail selling space increased by 0.2 million square feet since the financial year end and, as at 4 January, 376 stores were trading from 15.8 million square feet, compared to 15.1 million square feet a year ago.

Three new stores were opened in the period - Seville Lagoh in Spain, Kiel in Germany and Milan Fiordaliso in Italy.

In addition, Primark relocated to larger premises in the Norte shopping centre in Porto, Portugal, the Norwich store in the UK was extended, and selling space was reduced in two stores in Germany.

ABF said it now expected to add a net 0.9 million square feet of additional selling space in this financial year.

We expect to open 18 new stores together with a number of relocations and selling space will be reduced in a further store in Germany.

"Trading at our first store in eastern Europe, in Ljubljana, Slovenia has exceeded expectations.

"As previously announced, we will enter the Polish market with a new store in Warsaw in spring 2020, followed by a store in Prague, Czech Republic."

The company had also signed leases for a further store in Poland, in Poznan, and for its first store in Slovakia, in Bratislava, which would take Primark to its 15th country.

In its sugar division, ABF said AB Sugar revenue was 7% ahead of last year at constant currency and 5% ahead at actual exchange rates.

EU sugar prices remained at levels higher than last year, and the firm's UK and Spanish businesses had now substantially completed contracting sales for the financial year.

That, combined with reductions in the costs of sugar production, would deliver a material improvement in the company's sugar profit this year, weighted to the second half.

UK sugar production is expected to be 1.18 million tonnes, up on last year with an improvement in beet yield more than offsetting the reduction in crop area.

The company said the campaign was progressing well after some initial delays, following high levels of rain, which had at times limited harvesting.

In Spain, the lower beet prices contracted with growers, coupled with higher sugar prices, would deliver a "significantly improved" operating result this year.

Beet sugar production there was expected to be lower than last year at 210,000 tonnes, due to the reduction in contracted crop area in the north, which would however be compensated for by an increase in raws refining.

Sugar production at Illovo was now expected to be around 1.7 million tonnes, broadly in line with last year, with production in a number of countries being limited by heavy rains at the end of the season.

Sales across Illovo were ahead of the same period last year, but ABF said its higher-margin domestic sales in South Africa were affected by increased imports and a decline in consumption in that developed market.

"In China, production is expected to be 130,000 tonnes compared to 149,000 tonnes last year.

"A better-quality crop and the linking of some grower payments to the sugar content of their beet is expected to deliver a significantly improved operating result this year."

Looking at its grocery unit, ABF said sales were level with last year at both constant currency and actual exchange rates, with margin improving.

Sales growth in Twinings was driven in particular by herbal teas in the UK and the US, although Ovaltine sales were held back by a slow start in Thailand.

Margin benefitted from the tea supply chain efficiencies delivered last year.

At Allied Bakeries, the operating loss was reduced with progress from cost reductions "more than offsetting" the loss of contribution from lower sales.

ACH traded strongly in the US, with increased sales volumes and the first contribution from Anthony's Goods.

In agriculture, AB Agri revenue was 10% higher than last year at both constant currency and actual exchange rates, and margin declined.

Finally, looking at its ingredients operations, sales were 3% ahead of last year at constant currency and 1% ahead at actual exchange rates, with margins in line with the comparable period last year.

At 0846 GMT, shares in Associated British Foods were up 2.54% at 2,620p.

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