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ABF has warned its profits next year will be hit by the strength of the US dollar and ‘signficant market volatility affecting costs’, which will hit margins at its Primark retail arm.

In a pre-close statement this morning, ABF said group revenue for its current financial year will be well ahead of last year.

Its food businesses has seen higher revenues, reflecting price actions and some volume increases, especially in ingredients.

In Primark, the much higher revenues reflect the ending of COVID-related restrictions and the resumption of more normal customer behaviour.

Adjusted operating profit for the group will also be significantly ahead of last financial year.

However, in its outlook for the next financial year it now expects adjusted operating profit and adjusted earnings per share to be lower than this current financial year.

Food profit expected to be ahead of this year with further significant input cost inflation and pricing action, despite additional investment in growth initiatives and higher marketing spend

Sugar operating profit will be well ahead, with grocery operating profit broadly in line

However, Primark will come under margin pressure despite sales growth driven by pricing and acceleration of selling space expansion

The group expects significant market volatility affecting costs, including the strengthening of the US dollar at the end of this quarter and much higher energy costs as well as declining disposable income for consumers as a consequence of inflation.

It pledged to take significant action to mitigate input cost inflation, but has made the commercial decision to limit further pricing actions in the next financial year

Consequently, for next financial year, operating profit margin now expected to be lower than second half of this financial year

In the current financial year, grocery revenues are expected to be ahead of last year, benefiting from a build of price increases taken during the year with the year-on-year increase particularly evident in the last quarter.

Twinings sales reflected a return to more normal levels of demand after the COVID lockdowns of last year, Ovaltine sales were ahead with continued strong performance in Switzerland, Thailand and Nigeria and a return to stronger out-of-home consumption.

Allied Bakeries sales were ahead of last year but losses increased with significantly higher costs for wheat, energy and distribution. Although pricing action at AB World Foods and Jordans Dorset Ryvita led sales to be ahead, margins declined. Westmill benefited from the continued improvement in restaurant and take-away trade sales.

AB Sugar revenue is expected to be substantially ahead of last year driven by higher sugar and co-product prices.

UK sugar production was 1.03 million tonnes, compared to 0.9 million tonnes in the last campaign, with much improved sugar yields as a result of good growing conditions.

AB Agri sales are expected to be well ahead of last year with higher selling prices, as a result of high commodity costs, partially offset by some volume reduction, while ingredients revenue is expected to be strongly ahead of last year following price increases and some volume increases.

Primark’s total sales for the financial year are expected to be some £7.7bn, which at constant currency is 40% ahead of the reported sales last year and 44% ahead of last year adjusted to a comparable 52-week basis.

The much higher revenues reflect the end of COVID-related restrictions and the resumption of more normal customer behaviour.

In this final quarter trading in the UK was strong with sales densities much improved on the third quarter driven by like-for-like sales 13% ahead of last year and just below pre-COVID levels three years ago. This improvement was driven by higher customer footfall across the estate and, in particular, by customers returning to high streets and city centres.

ABF shares has dropped 7.5% this morning back to 1,346.5p on the announcement.

Morning update

The Restaurant Group has posted a strong rebound in sales and profits in the first half as Covid restrictions eased and consumers returned to eating out.

Total sales were up to £423.4m from £216.8m.

Adjusted EBITDA of £41.7m was up from £11.2m in the same period last year and adjusted profit before tax bounced back to £10.2m from a loss of £19.9m last year.

Wagamama achieved LFL sales growth of 11% in the YTD, representing a 6% outperformance versus the market.

Its pubs saw continued strong trading with LFL sales growth of 9%, representing a 11% outperformance versus the market.

It said ongoing significant cost pressures are being partially mitigated by decisive management actions:

Some 100% of utilities now hedged for the next three years to provide future certainty on the cost base, while it has an interest rate cap on £125m of gross debt through to November 2025.

CEO Andy Hornby commented: “We have made good progress in the past six months, delivering a robust financial performance in a challenging market, with continued LFL sales outperformance. I’d like to thank each and every member of our teams for their phenomenal efforts in delivering these results.

“We have taken decisive management actions to reduce the impact of the industry cost pressures including fully hedging our utilities until December 2024 and reducing our interest rate exposure through interest rate caps.

“Whilst the uncertain consumer environment presents challenges for the hospitality sector, the Group is well positioned to further develop our brands to deliver long-term growth for all stakeholders underpinned by our strong balance sheet.”

Elsewhere, Greencore has announced that non-executive director Helen Weir has been appointed board chair designate of National Express Group with effect from 1 October 2022, taking the chair role on 1 January 2023.

In light of this appointment, Weir has elected to rebalance her portfolio and therefore will step down from the Greencore board with effect from 31 December 2022.

Gary Kennedy, Executive Chair of Greencore, said: “On behalf of the Group and the board, I wish to sincerely thank Helen for her input and commitment to Greencore during her time with us.

“Her focus on board and audit and risk committee matters have been invaluable to both the board and the wider group. We are pleased that Helen remains with us for the rest of the calendar year and we wish her every success in her future endeavours”.

On the markets this morning, the FTSE 100 has edged up another 0.3% to 7,261.2pts.

Risers include Nichols, up 3.4% to 1,106p, Virgin Wines, up 2.9% to 53p and Bakkavor, up 1.2% to 92.2p.

Along with ABF, fallers include B&M European Value Retail, down 3.2% to 350.8p, Marks & Spencer, down 2.1% to 119.5p and THG, down 1.6% to 52p.

Yesterday in the City

The FTSE 100 ended yesterday up 0.4% at 7,263.5pts.

Bakkavor closed 1.2% up to 91.1p after reporting strong revenue momentum in the first half despite inflationary challenges which hit profits.

WH Smith fell 5.7% to 1,394.5pts despite “comfortably” surpassed pre-Covid sales levels in the second half as the travel industry bounced back from the pandemic.

Other risers included McBride, up 2.8% to 23.5p, Devro, up 2.2% to 187p, Deliveroo, up 2.1% to 85.3p, Compass Group, up 1.3% to 1,867.5p and DS Smith, up 1.1% to 275.1p.

The day’s fallers included Marks & Spencer, down 5.9% to 122p, Associated British Foods, down 3.6% to 1,455p, Tesco, down 2.6% to 249.3p, Nichols, down 2.3% to 1,070p, Kerry Group, down 2% to €98.32 and B&M European Value Retail, down 1.9% to 362.3p.