AB Foods' Chinese Operations Hit by Coronavirus But Primark Spared Short-Term Woes -- Update

Date : 02/24/2020 @ 9:24AM
Source : Dow Jones News
Stock : Associated British Foods Plc (ABF)
Quote : 1931.5  -2.5 (-0.13%) @ 4:35PM

AB Foods' Chinese Operations Hit by Coronavirus But Primark Spared Short-Term Woes -- Update

Associated British Foods (LSE:ABF)
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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)

Copyright (c) 2020 Dow Jones & Company, Inc.


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