Cumulative sales at Primark since reopening after lockdown are expected to be £2bn

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Associated British Foods has benefitted from a surge in grocery sales during the coronavirus outbreak and better-than-expected trading at Primark in the fourth quarter.

In a trading update ahead of results for the year to 12 September, the group said grocery retail sales volumes continued to increase in the US, Europe and Australia.

Increased demand for yeast and bakery ingredients, particularly across the Americas and China, delivered higher sales for the ingredients division.

As expected, the sugar business will deliver a “much-improved” profit year on year.

All Primark stores reopened during May, June and July and trading during the fourth quarter had been strong, ABF added. In the latest four-week UK market data for sales in all channels, Primark achieved its highest-ever value and volume shares for this time of year.

Group adjusted operating profits in the sugar, grocery, agriculture and ingredients businesses are expected to register “a very strong increase” compared with the previous year.

Profits for Primark, excluding exceptional charges, is now expected to be at least at the top end of the £300-£350m range previously advised, compared with £913m reported for the last financial year. Cumulative sales at the retailer since reopening after lockdown to the year-end are expected to be £2bn, 12% lower on a like-for-like basis. If the four large UK destination city centre stores are excluded the decline is 5%. ABF said it was “encouraged” by the strength of sales since stores reopened.

Grocery revenues will be ahead of last year with growth in Twinings, UK grocery, ACH and George Weston Foods in Australia.

Second-half revenue growth was stronger driven by increased retail demand as a result of Covid-19. Revenues will be held back by lower Ovaltine sales and the expected decline in Allied Bakeries.

Adjusted operating profit in the division will be significantly ahead with volume-driven margin gains in ACH, Twinings, George Weston Foods and UK grocery more than offsetting a one-time non-cash write-down of assets in Allied Bakeries of £15m.

Twinings made good progress this year with volume growth in black tea and infusions in each of its major markets. Sales of Ovaltine were, however, held back by the impact of Covid-19 on impulse sales, particularly in Thailand and Vietnam.

Allied Bakeries revenues declined this year following the termination of the business’ largest private-label bread contract earlier in the financial year. However, cost reductions and a Covid-19 related uplift in sales resulted in an improved underlying operating result. Following the previously announced loss of the Co-op contract, the carrying values of some distribution assets have been reviewed resulting in a one-time charge of £15m.

Although Westmill and AB Sports Nutrition recorded sales and profit declines due to the reduction in foodservice activity and sports events respectively, Silver Spoon, Jordans, Dorset Cereals, Ryvita and AB World Foods all benefited from significant increases in consumer demand in the second half.

Shares in ABF opened on the front foot this morning, rising 1.7% to 2,061p.

Morning update

Revenues at consumer goods group Ultimate Products have fallen 6.1% to £115.7m in the year ended 31 July. The group said in a pre-close trading update that the decrease reflected order cancellations and deferrals due to the Covid-19 pandemic. The fall was offset by strong growth in sales to supermarkets and online channels.

UK and international online revenues climbed 47.2% to £16.7m accounting for 14.5% of total group revenue.

Unaudited underlying EBITDA was down 3.3% to £10.4m and unaudited underlying pre-tax profits fell 2.7% to £8.2m.

The order book for the new financial year is ahead of this time last year.

And, as announced on 24 August 2020, the group decided to repay the £465,237 it received under the government’s coronavirus furlough scheme.

CEO Simon Showman said: “Given the significant challenges that Covid-19 initially caused for our business, I am delighted with the resilience of the performance that we have delivered in FY20.

“It is a clear testament to the strength and flexibility of our business model, as well as the ability of our people to improvise, adapt and overcome when faced with any challenge. It has been humbling to see the way that our teams have worked tirelessly to ensure that it has remained business as normal for Ultimate Products, despite a trading environment that has been anything but normal.

“The consumer response to our brands has continued to strengthen, particularly via supermarket, online and international channels. Despite the challenges of Covid-19, we have continued to provide a high-quality service to our customers and to develop our product range.

“Notwithstanding the ongoing economic uncertainty, we remain confident in the long-term prospects for Ultimate Products.”

Shares in the group opened 3.3% higher to 108.2p.

The FTSE 100 has bounced back to start the week up 1.2% to 5,866.16pts, but is still way below August’s 6,000-mark.

Bakkavor started the week like a rocket, climbing 8.5% to 55.3p, with other strong risers this morning including Nichols, up 4.5% to 1,295.5p, Total Produce, up 4.1% to 105.7p, and Just Eat, up 2.1% to 8,056.8p.

Fever-Tree increased by 3.1% to 2,119.1p ahead of interims tomorrow.

McColl’s was among the Monday morning fallers, down 1.3% to 26.5p, along with Marstons, down 1.1% to 48.9p, and PZ Cussons, down 0.5% to 208p.

This week in the City

The markets pick up a little this week after a quiet summer break. The big news for grocery this week comes in Thursday with the Morrisons half-year results.

Fever-Tree release its half-year figures tomorrow morning along with McBride’s full year figures, with the latest BRC-KPMG retail sales also scheduled for Tuesday.

In the wider retail market, there are trading updates from Halfords tomorrow, as well as interims from JD Sports. Alongside Morrisons on Thursday, Dunelm reports final results and there are AGMs at Dixons Carphone and N Brown.