AB Foods' Chinese Operations Hit by Coronavirus But Primark Spared Short-Term Woes -- Update
February 24 2020 - 04:24AM
Dow Jones News
By Adriano Marchese
--AB Foods' Chinese business operations are affected by
logistics and labour constraints due to the coronavirus
epidemic.
--While Primark is well-stocked for the next few months,
prolonged factory-production delays could risk supply shortages
later in the year.
Associated British Foods PLC said Monday that operations at its
food businesses in China have been affected by the coronavirus
epidemic, but that Primark's inventory is well-stocked for the
short-term.
The U.K. food-processing and retail company said its AB Mauri,
AB Agri and Ovaltine factories are operating, but at reduced
capacity due to labour and logistics constraints in China. It noted
that the company's Chinese sugar campaign was completed in January
before the outbreak developed significantly.
At its Primark business, the company said it has benefited from
the build up inventories in advance of the Chinese New Year and
therefore is "well-stocked with cover for several months and do not
expect any short-term impact."
However, it warned should factory-production delays continue,
this raises the risks of potential supply shortages on some lines
later in the year.
"We are working closely with our suppliers in China to assess
the impact on their factories and supply chains and their ability
to fulfil our current orders," the company said.
The company is assessing mitigating strategies, including a step
up in production from existing suppliers in other regions, it
said.
For the six months ended Feb. 29, the company said it expects
sales growth for the group and adjusted operating profit for the
first half of its fiscal 2020 to be ahead of the prior year, but
that it expects adjusted earnings per share in the period to
decline.
However, on a reported basis, AB Foods expects the dilutive
effect of adopting the IFRS 16 accounting method will result in a
small reduction in adjusted earnings per share.
Sales at Primark for the period are expected to be 4.2% ahead of
the year before at constant currency and 2.5% ahead at actual
exchange rates, the company said. It said growth was driven by
increased retail selling space and level like-for-like sales.
However, operating profit is expected marginally down on year at
constant currency and on a lease-adjusted basis, due to an expected
decline in margin, AB Foods said.
In the U.K., although Primark is expected to deliver sales 3%
ahead of the prior year period, like-for-like sales are expected to
decline 1.3%, which would offset the contribution from new selling
space in the first half.
Sales in the Eurozone are expected to be 5.3% ahead of last year
at constant currency with particularly strong sales growth in
France, Belgium and Italy, it said. It also said there has been a
notable improvement in Germany which was delivered through a series
of operational changes made by the new management team.
In the U.S., Primark continued to perform strongly, it said,
delivering like-for-like sales growth. It expects a "much-improved"
operating result for the year.
Here, too, margin was lower, seeing a decrease in the first half
compared with the prior-year period. AB Foods said Primark
purchases this year were obtained at a much stronger U.S. dollar
exchange rate, but the effects were mitigated by both reduced
markdowns and reductions in the costs of goods, especially for
materials prices.
Retail selling space was increased by 200,000 square feet since
the financial-year end, and said that at Feb. 29, 375 stores will
be trading from 15.8 million square feet compared with 15.1 million
square feet a year ago. Moreover, 900,000 square feet of new
selling space are slated to open in the fiscal year, with a strong
program planned for the next quarter, it said.
Looking ahead at the full year, AB Foods said it continues to
expect progress in adjusted earnings per share on both a reported
and lease-adjusted basis.
At 0853 GMT, shares were down 33.0 pence, or 1.3%, at 2550.0
pence.
Write to Adriano Marchese at adriano.marchese@wsj.com
(END) Dow Jones Newswires
February 24, 2020 04:09 ET (09:09 GMT)
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