Associated British Foods plc (LON: ABF) have given investors renewed confidence about future trading, driving share prices up.
AB Foods have forecasted strong growth figures in their next trading update, alluding to progress in its sugar and grocery businesses supplementing the further expansion of its Primark fashion chain.
Earlier in the year, AB Foods maintained expectations for their full year outlook.
Following this renewed confidence, seniority at AB may even look to exceed expectations to beat analyst and market predictions.
The main factor which has driven AB Food’s success in financial 2019 has been the expansion in sugar sales.
Profit from the division slumped 79% to £26 million in 2018-19. However, it is set to benefit materially from increases in European Union sugar prices and from further cost reductions.
“We had forecast the sugar decline, it’s now behind us, and the group still made progress despite it,” Chief Executive George Weston told Reuters.
“Prices in Europe are significantly ahead of where they were a year ago,” he said.
The group are expecting another strong year of trading, with emphasis on the Twining’s Ovaltine brand expanding from more efficient tea supply chains.
Primark, which generates about half of group revenue and profit, plans to add a net 1 million square feet of additional selling space in the new year. A small reduction in margin is expected, reflecting currency moves.
Weston said he was pleased with Primark’s trading so far in the 2019-20 year, highlighting the UK performance as “solid” in a tough overall market.
“We’re not completely immune from it, but we think we are winning,” he said, adding: “We’re well set up for Christmas.”
For the financial year ending September 14, overall sales at Primark came in at £7.79 billion – a 4.2% year-on-year uptick at actual exchange rates.
AB Foods said Primark performed well in the UK, with a “significant gain” in market share and sales growth of 2.5 per cent driven by the opening of four new stores – such as Birmingham High Street, which is now Primark’s biggest store worldwide.
Sales in the Eurozone were 4.8 per cent ahead of last year at constant currency, boosted by growth in Spain and France and strong performances in Italy and Belgium, despite tough political outlook with the EU.
AB Foods said “the positive reception by US consumers to Primark, combined with our profitable store model, gives us confidence for further expansion in the US market”.
Weston concluded by saying “Next year the group is well-positioned for further progress, with the continued expansion of Primark, a material improvement in our sugar profit and strong profit growth in grocery.”
AB Foods will be pleased with the current state of the supermarket industry, with firms such as Tesco (LON: TSCO), Marks and Spencer (LON: MKS) and Sainsbury’s (LON: SBRY) all setting up new initiatives to stimulate consumer demand.
Shares have spiked 5.62% as a result of this confident outlook, AB Food shares are trading at 2,375p per share. 5/11/19 13:47BST.
