8 November 2022
If you are covering Associated British Foods full year results this morning, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
“ABF's full year results were largely in line with the update, and warning, issued in September as it embarks on its first share buyback to the tune of £500m. This is a significant step for what has been a conservatively run family business in the past. The business also increased the dividend despite the fact Primark's operating margin will decline to below 8% in the year just started.
“Even though the environment is not looking kind for retailers, the group increased revenues 22% as a result of the post covid recovery continuing apace and taking advantage of food price inflation. Grocery profits beat expectations but the Sugar department was below consensus.
“In Q4 Primark performed better in the UK and USA than in continental Europe. Like for like sales in the UK are comparable to pre covid levels but Europe remains significantly behind. Germany is proving a particular challenge and management 'are reviewing options to reposition the business'.
“Primark purchases clothes in dollars and then sells them predominantly in sterling and euros. Recent sterling/euro weakness combined with higher energy costs are putting pressure on future profitability. At the same time the company want to remain competitive and affordable to a customer base whose disposable income is under severe pressure. Management have decided not to implement further price increases to protect margins so this will prove to be a significant headwind."
