Proactiveinvestors United Kingdom Associated British Foods plc https://www.proactiveinvestors.co.uk Proactiveinvestors United Kingdom Associated British Foods plc RSS feed en Sat, 15 Jun 2019 22:33:15 +0100 http://blogs.law.harvard.edu/tech/rss Genera CMS action@proactiveinvestors.com (Proactiveinvestors) action@proactiveinvestors.com (Proactiveinvestors) <![CDATA[News - Primark losing ground to online rivals like Boohoo and PrettyLittleThing, analysts suggest ]]> https://www.proactiveinvestors.co.uk/companies/news/219041/primark-losing-ground-to-online-rivals-like-boohoo-and-prettylittlething-analysts-suggest-219041.html Primark continues to buck the trend with strong sales but online rivals like Boohoo Group PLC (LON:BOO) pose a threat to the high street discount retailer.

On Wednesday, Primark’s parent company Associated British Foods plc (LON:ABF) said its star asset posted a 25% leap in adjusted operating profits to £426mln for the year to March 2 on improved margins and a 4.4% increase in revenue to £3.6bn.

READ: Weston family to pocket another £50mln as AB Foods hikes dividend despite first-half profit plunge

Boohoo, which owns the fashion website of the same name, as well as the PrettyLittleThing and Nasty Gal brands, reported a 38% jump in pre-tax profit to £59.9mln and a 48% rise in revenue to £856.9mln for the year ended February 28. 

“Primark remains the destination for affordable yet fashion-forward purchases, with its UK clothing market share for 2019 forecast at 6.9%, just behind M&S – though it has plenty of potential to leapfrog the market leader,” said Chloe Collins, senior retail analyst at GlobalData.

“For a retailer which solely relies on bricks-and-mortar this is clearly impressive, however online pureplays Boohoo and PrettyLittleThing continue to bite and Primark will remain under attack, making further product and price investments imperative to maintain appeal.''

Former Primark executive takes the helm of Boohoo

Boohoo’s new boss John Lyttle is the former chief operating officer of Primark.

READ: Boohoo posts sharp rise in 2019 profit and revenue, led by growth at PrettyLittleThing and Nasty Gal

Lyttle became chief executive of Boohoo in March after eight years at Primark where he oversaw a turnover growth of 158% to £7bn and improved operating profit by 116% to £735mln.

'One or two signs' Primark is slowing down, says Hargreaves Lansdown

Primark’s sales last year were boosted by increased selling space. However, on a like-for-like basis, sales fell 1.5% amid a tough retail market.

“The constant addition of extra sales space is driving the top line forwards, but with like-for-like sales in decline there are one or two signs this fast fashion brand is slowing down,” said George Salmon equity analyst at Hargreaves Lansdown.

“Primark’s pricing point means there’s a reason it’s focused solely on bricks and mortar retailing, but one can’t help but think this is holding the top line back - especially since rival boohoo, which is now headed up by former Primark boss John Lyttle, posted a near 50% rise in sales on the same day as these results were released.”

AJ Bell investment director Russ Mould said the challenge for Primark is to “keep flexing its muscles” by buying material at the best price, keeping tight stock management and avoiding discounts to protect margins.

Little work for Boohoo's new boss 

Turning to Boohoo’s full year results, Mould said the sharp rise in revenues is a “nice backdrop” for Lyttle to start implementing his own take on how to increase the company’s size and scale.

He noted that PrettyLittleThing continued to deliver the fastest growth with revenue approaching the same level as the core Boohoo brand.

Boohoo bought a controlling 66% stake in PrettyLittleThing in 2016 and can exercise an option to buy remaining shares in February 2022.

“It would be fair to suggest it will have to pay at least £400mln to buy the final slug of PLT,” Mould said.

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Wed, 24 Apr 2019 13:06:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/219041/primark-losing-ground-to-online-rivals-like-boohoo-and-prettylittlething-analysts-suggest-219041.html
<![CDATA[News - Weston family to pocket another £50mln as AB Foods hikes dividend despite first-half profit plunge ]]> https://www.proactiveinvestors.co.uk/companies/news/219013/weston-family-to-pocket-another-50mln-as-ab-foods-hikes-dividend-despite-first-half-profit-plunge-219013.html The Weston family is to pocket another £50mln from its Associated British Foods PLC (LON:ABF) cash cow after the Primark owner upped its half-year pay-out to shareholders.

Through their Wittington Investments vehicle, relatives of AB Foods’ founder, Garfield Weston, own 431.5mln shares or 54.5% in the £20bn FTSE 100-firm.

READ: Five things Primark is doing right

On Tuesday, AB Foods increased its interim dividend by 3% to 12.05p a share, meaning the Westons will receive £52mln when the divi is paid out in July.

Some of the money will go to the Garfield Weston Foundation, although a chunk will go to the family members themselves.

Group profits slump

The higher pay-out comes despite a 15% dive in group pre-tax profits to £515mln (H1 17/18: £603mln) in the six months ended 2 March. Revenue edged 1% higher to £7.53bn (H1 17/18: £7.42bn).

Much of the fall was down to a £65mln writedown in its Allied Bakeries division following the loss of its largest contract. There was also a £14mln charge related to AB Foods’ pension scheme.

Allied is part of ABF’s grocery division, which posted a 5% jump in adjusted operating profits to £167mln (H1 17/18: £159mln), with the new Twinings Cold Infuse teas going down well, particularly with shoppers.

Primark bucks high street gloom (again)

The all-important retail business, which is home to ABF’s star asset, Primark, posted a 25% leap in adjusted operating profits to £426mln (H1 17/18: £341mln), thanks to improved margins.

Sales in the UK were 2.3% ahead of the previous year, with like-for-likes up 0.6% as the low-cost clothes retailer bucked the high street gloom once again.

Despite recent conflicting reports about the launch of an online service at Primark, there was no mention of click and collect or anything of that ilk in the result statement.

Growth in those two arms was more than offset by continued falls in sugar, which just about broke-even in the first half (H1 17/18: £106mln) as low prices weigh on profitability.

Sugar profits to pick up

There was some good news though: profits from the sugar business are expected to start rising again from now on after months of declines.

“This is a robust set of results,” said chief executive George Weston, who repeated his expectations that full-year earnings will be in-line with 2018.

“Profit at AB Sugar was substantially reduced but, from this period, we expect our sugar profitability to improve. The strong underlying growth in Grocery profits demonstrates good momentum.”

He added: “Primark delivered excellent profit growth, driven by further development of our customer experience and selling space expansion.”

By late morning trading, shares in AB Foods had gained 2.4% to 2,567p in early deals.

In a note to clients, analysts at Liberum Capital said the group's first-half earnings were solid, broadly in-line with its expectations, notably with Primark performing well in the UK.

Liberum repeated a 'buy' rating and 3,070p price target on AB Foods' shares.

 -- Adds analysts comment, updates share price --  

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Wed, 24 Apr 2019 08:37:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/219013/weston-family-to-pocket-another-50mln-as-ab-foods-hikes-dividend-despite-first-half-profit-plunge-219013.html
<![CDATA[RNS press release - Interim dividend ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190424070500_14049311/ Wed, 24 Apr 2019 07:05:00 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190424070500_14049311/ <![CDATA[RNS press release - 2019 Interim Results Announcement ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190424070003_14049199/ Wed, 24 Apr 2019 07:00:03 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190424070003_14049199/ <![CDATA[News - Five things Primark is doing right to avoid same fate as Debenhams and House of Fraser ]]> https://www.proactiveinvestors.co.uk/companies/news/218438/five-things-primark-is-doing-right-to-avoid-same-fate-as-debenhams-and-house-of-fraser-218438.html The high street may be in trouble but Primark continues to thrive.

The hype surrounding the grand opening of the world’s biggest Primark in Birmingham on Thursday confirmed that the value fashion retailer has managed to avoid the same struggles endured by its sector peers.    

READ: AB Foods expects Primark’s first-half profit to be “well ahead” of last year

Many shoppers camped outside the 160,100sq ft megastore for hours before it was opened.

The store has five floors and features a barber shop, a beauty studio, three restaurants and two cafes, including one that is Disney-themed.

Primark, which is owned by Associated British Foods plc (LON:ABF), continues to expand in an age when other bricks and mortar retailers are closing stores.

According to figures published on Wednesday by Local Data Company and PwC, a net 2,481 stores vanished from the UK’s busiest high streets in 2018.

Among those to close stores in the UK are Debenhams – the department store chain that entered administration this week – and rival House of Fraser, which was rescued by Sports Direct International PLC (LON:SPD) last year. 

With high street stores evaporating at a rapid rate, Primark’s success begs the question – what has it done right that others have done wrong?

Setting trends and keeping prices low

The simple answer, according to Liberum analyst Robert Waldschmidt, is that the company is “giving shoppers what they want”.

Waldschmidt said Primark offers cheap prices, keeps trends fresh by frequently rolling out new clothing ranges and gives store managers an opportunity to tailor their shelves with products that  are most popular in their local area. 

Creating a shopping experience 

With the launch of the Birmingham megastore, Primark is now giving customers a “shopping experience”, a trend that Waldschmidt expects other retailers will follow to improve footfall.  

“The whole idea is to create dwell time,” he said, adding that it is a “way of driving more gross profit to the till”.

“You need to give shoppers a reason to be there, there needs to be an experiential traffic driving reason to be in the area.”

Addressing ethical concerns

Waldschmidt also thinks Primark has done well to address concerns about ethical trade and environmental issues related to so-called “fast fashion” practices.

He noted that Primark carries out thousands of audits on manufacturing each year, makes sure it adheres to the Modern Slavery Act and child labour rules, has introduced the use of sustainable cotton in clothing, limits the use of plastic in stores and offers recycling bins for clothing.

Staying offline

Another reason Primark has not suffered at the hands of a high street downturn could be that is yet to move the business online, Waldschmidt said.

“I don’t know from a consumers point of view if it’s a good thing but from a financial standpoint they would lose money if had a pure direct to home online offer,” he said.

“You’d be selling the same stuff in store potentially at a price that would be uneconomical given the returns model that we have."

READ: Why it makes no business sense for Primark to move online

By staying offline, Primark saves itself the hassle and the money involved in deliveries, meaning it can keep prices low.

George Weston, the chief executive of Associated British Foods, once pointed out: “As you can imagine, the margins are so small that it can be difficult to sell a £3 t-shirt when you’re spending the same amount just to ship it.”

Online-only fashion retailer ASOS plc (LON:ASC) proved that point in its first-half results on Wednesday, reporting an 87% drop in pre-tax profit, largely due to distribution and warehouse costs.

But considering click and collect 

While Primark has so far refused to launch an online delivery business, it is exploring a click and collect offering.

Waldschmidt said once Primark figures out the complexities involved in setting up click and collect, he thinks “they’ll go for it” but it will be “an incremental bolt on”.

“They are never going to sell their whole range on click and collect, it’ll be select ranges, it will be incremental,” he said.

Either way, Waldschmidt thinks Primark has a "bright future". 

As for the rest of the retail sector, he expects companies to adjust to the digital age and sees more local neighbourhood stores replacing big chains.

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Thu, 11 Apr 2019 15:24:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/218438/five-things-primark-is-doing-right-to-avoid-same-fate-as-debenhams-and-house-of-fraser-218438.html
<![CDATA[RNS press release - Director Declaration ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190403104454_14027261/ Wed, 03 Apr 2019 10:44:54 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190403104454_14027261/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190301174114_13988034/ Fri, 01 Mar 2019 17:41:14 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190301174114_13988034/ <![CDATA[News - Why it makes no business sense for Primark to move online ]]> https://www.proactiveinvestors.co.uk/companies/news/215233/why-it-makes-no-business-sense-for-primark-to-move-online-215233.html Associated British Foods plc (LON:ABF) has taken some flack from some in the past for not having an online store for Primark – its value fashion chain and the group’s star business.

The UK high street has struggled over the past year or two as stagnant wage growth and above-target inflation have hit consumers’ pockets hard, while the few quid that they do have to spend is increasingly being spent over the internet.

Data last week from the Confederation of British Industry showed that those trends are unlikely to change any time soon.

READ: AB Foods says Primark first half profit to be “well ahead” of last year

So it’s no surprise then that shops are clamouring to build their presence online – a strategy that the likes of Asos PLC (LON:ASC) and Boohoo Group PLC (LON:BOO) have been handsomely rewarded for adopting.

But Primark isn’t one of those following the herd: it hasn’t looked to move online, nor does it have any intention of doing so.

“Primark does look at alternative business models from time to time, but there are no current plans to trade online,” said a spokesperson.

“Customers enjoy looking online at the latest offers, and then come to stores on the high street to buy. The in-store design and experience is part of Primark’s attraction to customers.”

Some in the City have dismissed the refusal to move online as a sign of naivety or stubbornness, but Liberum analyst Robert Waldschmidt thinks there’s a very good reason why it hasn’t happened yet and why it is unlikely to in the future.

Return costs ‘would eat Primark alive’

“The rationale behind them not selling online now is the fact that as much as three-quarters of the basket purchased online is returned,” Waldschmidt told Proactive.

“Given Primark’s price points per item, that doesn’t make for a very profitable model. As it stands now, if they sold online, they’d probably be losing money on the online sales.”

It’s not just the cost of returning goods, sending them can often cost the same amount, if not more, than the price of the goods themselves.

“As you can imagine, the margins are so small that it can be difficult to sell a £3 t-shirt when you’re spending the same amount just to ship it,” said AB Foods chief executive George Weston back in 2013 after the end of a trial with online fast fashion giant Asos.

“The shipping costs for an online business it the key reason why online-only retailers can’t compete with us.”

No need to chase sales

Liberum number cruncher Waldschmidt also believes that not only does it not make sense financially but that Primark has no need to chase online sales.

“In contrast to a large number of retailers, Primark is actually growing absolute sales…and is still taking [market] share,” he said.

“I’d prefer that they do that on a profitable basis as opposed to growing the top line and destroying the profits. I do not see right now how they have a viable pureplay online-only option; the returns would eat them alive.”

Click and collect could work though

The analyst does acknowledge that there is still an online option available to Primark bosses that have proved popular with its bricks-and-mortar retail peers: click and collect.

“If you look at what makes the Primark model work, it’s the sales densities within the stores.

“And how do you drive more density in your existing estate? Well, it would be having more people click and collect.

“You buy online, you go to the store, you pick it up and potentially pick up some more stuff. It also addresses that issue of returns quite easily.”

AB Foods shares were down 1.8% to 2,272p on Monday afternoon.

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Mon, 25 Feb 2019 13:30:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/215233/why-it-makes-no-business-sense-for-primark-to-move-online-215233.html
<![CDATA[News - AB Foods expects Primark’s first-half profit to be “well ahead” of last year ]]> https://www.proactiveinvestors.co.uk/companies/news/215189/ab-foods-expects-primarks-first-half-profit-to-be-well-ahead-of-last-year-215189.html First-half profits at Primark, Associated British Foods plc’s (LON:ABF) star division, are expected to be “well ahead” of last year after a pick-up in sales over Christmas and into the New Year.

AB Foods issued a shock profit warning at the back-end of 2018 after a “challenging” November – a key month for Britain’s retailers which signifies the start of the hectic festive shopping season.

READ: ABF warns of "challenging" trading in run-up to Christmas

But the FTSE 100 giant reassured investors in January that Christmas trading at its value fashion chain had been strong and even “exceeded [management’s] expectations”.

ABF confirmed on Monday that Primark sales for the six months to 2 March are expected to be 4% ahead of last year.

The growth is being driven largely by new store openings and extensions to existing shops, with like-for-like sales set to fall 2% in the first half.

“[But] with a much higher margin, profit is expected to be well ahead of the same period last year,” read Monday’s all-encompassing update.

Sill winning market share in UK

The UK, where Primark is still winning market share, “continue[s] to perform well”, with trading to continuing to pick up since January’s update amid an “encouraging” reaction to the new spring/summer range.

The performance over Christmas and into the New Year has offset the poor November meaning UK like-for-likes should be level with last year.

Away from its home market, “excellent trading” at the new Primark store in Brooklyn, New York, coupled with better buying, tighter stock management and fewer discounts, has “much reduced” the operating loss of the US division.

Sales in Europe are expected to be 5% ahead of last year, with “particularly strong” growth in Spain, France, Italy and Belgium. First-half like-for-likes across the Channel are expected to dip 3%.

Management still has a few levers to pull in terms of driving sales it seems, with several new stores set to open in the UK and Europe next quarter.

Sugar's struggles persist

As with Primark, AB Foods expects sales to have risen in its grocery, agriculture and ingredients divisions in the first half.

In grocery, good performances from the Twinings Ovaltine and Ryvita brands means revenue and profit will come in ahead of the same period last year.

In the agriculture division, ABF has been able to sell more of its feed despite having to raise prices due to higher commodity costs. Protein crisps were the big growth driver for the ingredients business.

Unsurprisingly, though, AB Sugar is still struggling.

An excess supply of the sweet stuff has hit sugar prices which have been falling for some months now, and the group, expects this business to make a loss this year.

There looks to be some much-needed light at the end of the tunnel though, with stocks coming down which is helping to underpin the “current upward trend in EU sugar prices”.

Guidance reiterated

Growth elsewhere will more than offset the troubles in the sugar division, though.

ABF bosses expect adjusted earnings per share to be in line with the first half of last year – around 61.3p – with slightly lower costs offsetting a small reduction in adjusted operating profit.

“For the full year, our outlook for the group is unchanged with adjusted operating profit and adjusted earnings per share for the year expected to be in line with last year (134.9p).”

Shares dropped 0.9% to 2,292p at the opening bell on Monday.

--Adds share price and additional info--

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Mon, 25 Feb 2019 07:50:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/215189/ab-foods-expects-primarks-first-half-profit-to-be-well-ahead-of-last-year-215189.html
<![CDATA[RNS press release - Pre Close Period Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190225070004_13979523/ Mon, 25 Feb 2019 07:00:04 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190225070004_13979523/ <![CDATA[News - AB Foods back in fashion as Primark enjoys better than expected Christmas ]]> https://www.proactiveinvestors.co.uk/companies/news/212764/ab-foods-back-in-fashion-as-primark-enjoys-better-than-expected-christmas-212764.html Associated British Foods PLC (LON:ABF) was back in fashion on Thursday after it revealed that Primark enjoyed a better than expected Christmas.

November was reported by some in the industry as the worst month for retailers in living memory. Even Primark, which had seemed immune to dwindling consumer confidence and weaker high street footfall, warned that trading that month had been “challenging”.

READ: AB Foods warns of “challenging” trading at Primark

Shares dropped on the back of that update, with investors speculating that the slump might well continue over Christmas – a key trading period in which some retailers can make more than a third of their annual profit.

But AB Foods said on Thursday that sales over the festive season “exceeded our expectations”, helping the value fashion chain to significantly increase its share of the UK clothing market.

Primark profits ‘well ahead’

Overall, sales in the 16 weeks to 5 January rose 4%, largely driven by new store openings and extensions to existing shops. Sales in the UK grew 1% - an impressive feat given the market as a whole declined year-on-year.

The rise in sales, coupled with higher operating margins, meant profits were “well ahead” of last year, ABF said.

Away from the UK, sales in Europe rose 5% with “especially strong” performances in France, Belgium and Italy. Primark’s US business also enjoyed a “strong” period as sales boomed at its new Brooklyn store.

The only blot for the retailer was a “modest decline” in like-for-like sales, mainly due to the woeful November.

Sugar’s struggles continue

As with Primark, ABF saw sales grow in both its grocery and agriculture and ingredients businesses, although, as expected, AB Sugar struggled once again.

An excess supply of the sweet stuff has hit sugar prices which have been falling for some months now, and the FTSE 100 group expects this business to make a loss this year.

There could be some light at the end of the tunnel, though, with prices showing much-needed “early signs of recovery” in recent weeks.

The sugar division’s troubles partly offset growth elsewhere, although total group revenues still climbed 2% in the 16-week period.

Primark ‘still the jewel in ABF’s crown’

“ABF’s crown jewel is still Primark, and it’s managing to shine through a pretty muddy high street environment,” said Hargreaves Lansdown equity analyst Sophie Lund-Yates.

“Growth may be slightly slower than we’ve seen in recent updates, but the fact is positive sales growth is a feat many stores simply aren’t managing at the moment.

“With brands from Debenhams to Superdry battling with a dwindling customer base, Primark’s doing well to stand firm – especially because it doesn’t have an online presence to rely on like the others.

She added: “For now Primark just needs to keep doing what it’s doing – opening new stores is clearly working, even if doing so seems like a brave move in a rocky retail climate. All-in-all, Primark’s in a position some of its rivals can only dream of.”

AB Foods shares rose 5.7% to 2,301p on Thursday afternoon.

-- Updates for share price and analyst comment --

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Thu, 17 Jan 2019 08:44:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/212764/ab-foods-back-in-fashion-as-primark-enjoys-better-than-expected-christmas-212764.html
<![CDATA[RNS press release - Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190117070003_13937305/ Thu, 17 Jan 2019 07:00:03 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190117070003_13937305/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190116090047_13936498/ Wed, 16 Jan 2019 09:00:47 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20190116090047_13936498/ <![CDATA[RNS press release - Result of AGM ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181207150738_13896369/ Fri, 07 Dec 2018 15:07:38 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181207150738_13896369/ <![CDATA[News - AB Foods warns of “challenging” trading at Primark in run-up to Christmas ]]> https://www.proactiveinvestors.co.uk/companies/news/210748/ab-foods-warns-of-challenging-trading-at-primark-in-run-up-to-christmas-210748.html Associated British Foods PLC (LON:ABF) dealt investors a blow on Friday after warning that trading at its Primark stores has been “challenging” in the lead up to the key Christmas period.

The value fashion chain has been AB Foods’ star performer in recent years, bailing out the struggling sugar business which has been hit by the sweet stuff’s plunging prices.

READ: Primark on track to overtake Next as UK’s second-largest clothes retailer

“However, during November Primark trading was challenging, in a tough retail market,” read a statement ahead of today’s annual general meeting.

Chairman Michael McLintock did add that, as a result of “careful inventory management and improved margins”, he still expects the mass-market retailer to post a rise in full-year profits, driven by increased overall selling space.

But a gentle warning from a seemingly infallible business which makes up more than half of AB Foods’ annual profits will no doubt worry investors, especially when AB Sugar is showing no signs of improvement.

Full-year guidance reiterated

Sugar prices in the EU have tumbled due to a supply glut, which will result in “significantly lower” profits in that division.

Improved margins and a full-year contribution from its recently-acquired Acetum balsamic vinegar business should result in higher profits in the grocery division, which houses the Twinings brand, among others.

“Taking all of these factors into account, at this early stage, we still expect adjusted earnings per share for the group for this financial year to be in line with the 2018 financial year,” said McLintock.

As he repeated the full-year guidance from last month’s annual report, he added that trading in the first eight weeks of the new financial year has been in line with expectations.

High street struggles

“Could we about to see a rough ride for retailers over the key Christmas period?” asks Markets.com analyst Neil Wilson.

“We know it’s tough out there and share prices across the piece reflect that already to a large degree. But Primark has done better than most and the fact that it too is facing severe headwinds is a concern for the sector as a whole.

“If Primark is struggling, what chance does the rest of the high street have?”

AB Foods shares were down 5% to 2,233p in mid-afternoon trading on Friday.

-- Updates for analyst comment and share price --

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Fri, 07 Dec 2018 07:41:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/210748/ab-foods-warns-of-challenging-trading-at-primark-in-run-up-to-christmas-210748.html
<![CDATA[RNS press release - AGM Trading Statement ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181207070003_13894990/ Fri, 07 Dec 2018 07:00:03 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181207070003_13894990/ <![CDATA[RNS press release - Director/PDMR Shareholdings ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181127155259_13882425/ Tue, 27 Nov 2018 15:52:59 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181127155259_13882425/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181121183409_13876148/ Wed, 21 Nov 2018 18:34:09 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181121183409_13876148/ <![CDATA[RNS press release - Annual Report and Accounts 2018 ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181108103000_13860055/ Thu, 08 Nov 2018 10:30:00 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181108103000_13860055/ <![CDATA[News - Primark on track to overtake Next as UK’s second-largest clothes retailer by end of year ]]> https://www.proactiveinvestors.co.uk/companies/news/208618/primark-on-track-to-overtake-next-as-uks-second-largest-clothes-retailer-by-end-of-year-208618.html Associated British Food PLC’s (LON:ABF) Primark fashion chain is set to overtake Next PLC (LON:NXT) and become the UK’s second-largest clothes retailer before 2018 is out.

Data group GlobalData estimates that Primark is on track to command a 6.8% share of the clothing market by the end of the year, ahead of Next which it forecasts will have a 6.7% share.

READ: Weston family to pocket £200mln dividend as AB Foods reports rise in profits

That would leave it behind only Marks and Spencer Group PLC (LON:MKS), which is forecast to be a little further up the road at almost 7.5%.

“Primark is showing the resilience that midmarket players and the likes of New Look can only dream of with the behemoth’s success down not only to price but to product, and in particular its impressive breadth and depth, with Primark equally top of mind for basics as it is for trend-led items,” said GlobalData’s senior retail analyst Kate Ormrod.

What high street problems?

The UK high street’s troubles have been well-documented, but Primark bucked the trend once again last year, posting a 5.3% rise in UK sales, and a 1.2% climb in like-for-likes – a key metric for retailers.

Including the 11 other countries it is now in, sales rose 5% to £7.48bn, although much of that was driven by the 1mln square feet of new retail space it opened up last year.

To give that figure some meaning, parent company AB Foods invested £434mln into Primark in the year just gone, predominantly on fitting out new and existing stores.

Like-for-like sales fell 2.1% though, with the retailer blaming “unseasonable weather in three distinct periods” in the Eurozone for the dip.

Sales and profits to grow this year (again)

Despite that drop-off, operating profits soared 13% to £843mln, with fewer markdowns than expected helping to boost its margin up to 11.3%.

The margin is expected to stay “broadly in line” for the year ahead which, when coupled with an expected rise in sales, should result in another jump in sales.

That expected growth is likely to be largely driven by new store openings once again, with Primark noting that its “selling space expansion will continue”.

One of the new stores will be a 160,000 square foot superstore in Birmingham – the largest Primark ever.

If that’s a sign of what’s to come, Marks and Spencer’s position at the top of the UK clothing table will come under threat sooner rather than later.

ABF shares were up 2.2% to 2,440p in early afternoon trading on Tuesday.

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Tue, 06 Nov 2018 12:50:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/208618/primark-on-track-to-overtake-next-as-uks-second-largest-clothes-retailer-by-end-of-year-208618.html
<![CDATA[News - Weston family in £200mln dividend pay-out as profits rise at Associated British Foods ]]> https://www.proactiveinvestors.co.uk/companies/news/208585/weston-family-in-200mln-dividend-pay-out-as-profits-rise-at-associated-british-foods-208585.html The Weston family is to pocket almost £200mln in dividends from Associated British Foods plc (LON:ABF) this year after the Primark owner posted a rise in annual sales and profits.

Through their Wittington Investments vehicle, relatives of AB Foods’ founder, Garfield Weston, own 431.5mln shares in the £19bn FTSE 100 company, or 54.5%.

READ: Is it time for ABF to spin off Primark?

This morning (Tuesday), AB Foods hiked its total dividend by 10% to 45p on the back of another solid year for the group, meaning Wittington Investments will receive £194.2mln.

Just over £50mln of that was paid out in July as part of the interim dividend, with the reminder due in early January.

Some of the money will go to the Garfield Weston Foundation, although a chunk will go to the family members themselves.

Associated British Foods, which also owns the Twinings brand, announced the dividend rise alongside its full-year results.

Group revenue edged up 1% to £15.6bn in the year ended September 15, while adjusted pre-tax profits rose 5% to £1.37bn.

Primark still the star

Value fashion chain Primark bucked the general high street downturn to post a 15% rise in adjusted operating profits to £843mln as sales climbed 6% to £7.48bn.

AB Foods has been trying to crack America with its star asset and said it was “very pleased” with trading across the pond, particularly at its ninth and latest store in Brooklyn, New York.

The company’s grocery, agriculture and ingredients businesses also reported “strong profit performances”.

That helped to more than offset the well-known struggles in ABF’s sugar arm, which has been battered by a slump in sugar prices.

Adjusted operating profits in that division more than halved to £123mln in the period, forcing it to shut down a plant in Hull.

Further investment planned

“This was another year of progress for the group,” said chief executive George Weston.

“Strong profit performances were delivered by each of Primark, Grocery, Agriculture and Ingredients. These more than offset the decline in Sugar profit which was caused primarily by low prices in the first year after the structural change in the EU sugar regime.”

He added: “Looking ahead, management have clear plans for further investment and for pursuing opportunities for business improvement.”

As of September 15, AB Foods had net cash of £614mln.

Shares rose 2% to 2,437p in early deals on Tuuesday.

--Updates for additional info and share price--

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Tue, 06 Nov 2018 07:51:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/208585/weston-family-in-200mln-dividend-pay-out-as-profits-rise-at-associated-british-foods-208585.html
<![CDATA[RNS press release - Final dividend for the year ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181106070105_13855983/ Tue, 06 Nov 2018 07:01:05 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181106070105_13855983/ <![CDATA[RNS press release - Annual Results ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181106070007_13855920/ Tue, 06 Nov 2018 07:00:07 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181106070007_13855920/ <![CDATA[RNS press release - Holdings in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181022110809_13837378/ Mon, 22 Oct 2018 11:08:09 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20181022110809_13837378/ <![CDATA[News - Could Whitbread’s sale of Costa force AB Foods to do something similar with Primark? ]]> https://www.proactiveinvestors.co.uk/companies/news/204531/could-whitbreads-sale-of-costa-force-ab-foods-to-do-something-similar-with-primark-204531.html Associated British Foods PLC’s (LON:ABF) pre-close trading update on Monday showed once again that it was Primark bailing out its struggling sugar business.

Forgive me if you’ve heard this before.

The FTSE 100 group has often been asked whether it plans to spin off its successful value fashion chain or sell the sugar division, but the answer has always been the same: being part of a larger group gives all of its businesses more financial firepower.

READ: AB Foods warns of currency hit to profits

There was a similar defiance from Whitbread PLC (LON:WTB) when analysts and shareholders argued that it made little sense to have a coffee chain (Costa) and hotel chain (Premier Inn) under the same roof.

Despite the initial reluctance, Whitbread bosses came to their senses and struck a deal with Coca Cola to offload Costa for the best part of £3bn.

Analysts reckon that could prompt the AB Foods board to at least consider the option of splitting up its business.

“I’m not sure why ABF hangs on to the sugar division when it continues to impair overall performance,” said IG’s chief market analyst Chris Beauchamp.

“Primark has demonstrated the ability to keep growing, and it would likely command a higher premium without the sugar business dragging performance.

He added: “As Whitbread spins off Costa, the voices calling for ABF to take the hard decision will only grow louder.”

Whitbread’s board eventually bowed to pressure from activist investors, a scenario which analysts think could also play out with ABF.

Major shareholder unmoved

The big issue in this particular case is that almost 60% of ABF’s shares are held by chief executive George Weston and his family.

That means the Westons need to be on board with any proposed changes and, so far at least, they have shown little interest in breaking the status quo.

If the family opts to maintain things as they are, Beauchamp is convinced that Primark, along with ABF shareholders, will continue to be held back by the ailing sugar business.

“The problem for Associated British Foods is that it is a perfectly good clothing retailer for the mass market but until either the sugar market turns around or ABF bites the bullet and gets rid of it the shares will be serial underperformers.”

ABF shares dropped more than 4% at the opening bell on Monday, although they have recovered some of those losses as the day has worn on and are down 1% to 2,249p in early afternoon trading.

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Mon, 10 Sep 2018 12:20:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/204531/could-whitbreads-sale-of-costa-force-ab-foods-to-do-something-similar-with-primark-204531.html
<![CDATA[News - Primark owner AB Foods warns of currency hit to profits but maintains guidance ]]> https://www.proactiveinvestors.co.uk/companies/news/204499/primark-owner-ab-foods-warns-of-currency-hit-to-profits-but-maintains-guidance-204499.html Primark owner Associated British Foods plc (LON:ABF) has warned it would take a £20mln hit to full-year profits related to foreign exchange headwinds and that operating cash inflow would be lower.

In a trading update for the year to September 15, the food and retail group said a strengthening of the pound had a negative impact on results since two-thirds of its operating profit is earned outside the UK.

Operating cash inflow will decline, reflecting higher working capital in the sugar division and an increase in capital expenditure for the expansion of Primark.

The net cash position is expected to be slightly lower than last year due to a decline in operating cash inflow and the £282mln acquisition of Italian balsamic vinegar brand Acetum last October.

Full year outlook unchanged

Still, AB Foods left its guidance for the year unchanged with an improvement expected in adjusted operating profit and adjusted earnings per share.

The company anticipates strong profit from its Primark, grocery, agriculture and ingredients businesses to offset a slump in the sugar arm, which has been hit by lower prices in the European Union.

The EU’s removal of sales quotas and constraints on exports of sugar led to higher production, which dampened prices and resulted in much lower revenue and adjusted operating profit in the sugar division.

Primark sales expected to rise

The group’s star performer, Primark, continues to drive growth with sales expected to be up 5.5% at constant currency boosted by the opening of new stores, although like-for-like sales are forecast to drop 2%.

In the UK, where the retail market has been hurt by weaker consumer confidence and online competition, Primark sales are predicted to increase 6% and like-for-like sales are expected to grow 1.5% as cash-strapped shoppers were attracted by the low-priced items the retailer sells.

READ: Is it time for AB Foods to either sp in-off Primark or sell its sugar division?

In May, the company reduced its selling space at US stores in Freehold and Danbury. AB Foods said trading at these stores has been “encouraging”.

Primark’s operating margin will rise to 11% from 10.4% last year, buoyed by a weaker US dollar in the second half and lower-than-expected markdowns following a successful sell-through of summer ranges.

However, the company cautioned that sales next year will be sensitive to sterling exchange rate volatility, which is like to arise during Brexit negotiations.

It plans to add more than 1 million sq ft of additional selling space for Primark in the next financial year.

Strong performances in grocery and agriculture 

In the grocery division, revenues and adjusted operating profit for the year are expected to be higher than last year, driven by growth in Twinings Ovaltine, improved margin at George Weston Foods and the first year of contribution from Acetum.

Operating profit and revenues in the agriculture business are also expected to rise on the back of higher commodity prices, a larger sugar beet crop and a successful first full year operation from its anaerobic digestion plant.

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Mon, 10 Sep 2018 07:50:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/204499/primark-owner-ab-foods-warns-of-currency-hit-to-profits-but-maintains-guidance-204499.html
<![CDATA[RNS press release - Pre Close Period Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180910070004_13783779/ Mon, 10 Sep 2018 07:00:04 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180910070004_13783779/ <![CDATA[RNS press release - Directorate Change ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180905162246_13780283/ Wed, 05 Sep 2018 16:22:46 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180905162246_13780283/ <![CDATA[RNS press release - Director / PDMR announcement for John Bason ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180723155903_13728080/ Mon, 23 Jul 2018 15:59:03 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180723155903_13728080/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180706165538_13709390/ Fri, 06 Jul 2018 16:55:38 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180706165538_13709390/ <![CDATA[News - Is it time for AB Foods to either spin-off Primark or sell its sugar division? ]]> https://www.proactiveinvestors.co.uk/companies/news/200212/is-it-time-for-ab-foods-to-either-spin-off-primark-or-sell-its-sugar-division-200212.html Associated British Food PLC’s (LON:ABF) third-quarter update showed once again that it was Primark bailing out its struggling sugar business.

The FTSE 100 company has long been questioned about the possibility of spinning off its successful value fashion chain, but the answer has always been the same: being part of a larger group gives all of its businesses more financial firepower.

READ: ABF’s sugar business to offset higher Primark profits

To some extent, that makes sense: had Primark been spun out, today’s update would have almost certainly been a profit warning.

A glut of sugar has sent prices of the sweet stuff crashing, so much so that AB Foods now expects its sugar division to see a “substantial reduction” in sales and profits over the next two years at least.

Primark, on the other hand, is continuing to see sales rise even in its core UK market, where the gloomy high street trading conditions have been well documented.

Sales are up by 7% so far this year – a slight tail-off compared to earlier on in the year – with more stores opening across the UK and abroad. Primark is also in the process of an ambitious expansion into the US, which could prove to be a lucrative market if it gets it right.

Could Primark demand a higher premium on its own?

It’s the bottom line which is making real progress though. AB Foods said in today’s update that the retailer’s full-year profits would be ahead of expectations as margins continue to improve.

Primark already accounts for around 53% of group profits, but that looks set to rise again this year.

Despite the decent figures from its star asset, AB Foods shares are down 4.2% today to 2,603p, which begs the question: could Primark’s value be higher if it was hived off? IG’s chief market analyst Chris Beauchamp thinks so.

“I’m not sure why ABF hangs on to the sugar division when it continues to impair overall performance.

“Primark has demonstrated the ability to keep growing, and it would likely command a higher premium without the sugar business dragging performance.

He added: “Sugar prices are down 25% year-to-date and there’s no sign of a bounce as production continues to rise – we can expect a repeat of today’s RNS in the months to come.”

Does Costa hold the key?

While chief executive George Weston and his team have shown no interest in splitting up the company, Beauchamp reckons their minds could be changed if Whitbread PLC’s (LON:WTB) de-merger of its Costa Coffee business goes smoothly.

Whitbread, which also owns Premier Inn, came under pressure from investors who said it didn’t make sense to have a coffee shop chain and hotel group under the same roof.

“An activist investor may well push ABF down this road [as well], and if Whitbread succeeds more than a few will start to ask questions,” said Beauchamp.

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Thu, 05 Jul 2018 13:40:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/200212/is-it-time-for-ab-foods-to-either-spin-off-primark-or-sell-its-sugar-division-200212.html
<![CDATA[News - Difficulties in AB Foods’ sugar business to offset better-than-expected profits at Primark ]]> https://www.proactiveinvestors.co.uk/companies/news/200168/difficulties-in-ab-foods-sugar-business-to-offset-better-than-expected-profits-at-primark-200168.html Associated British Foods plc (LON:ABF) expects profits in its Primark business to be higher than expected this year but kept its overall guidance on hold as its sugar division continues to battle falling prices.

It is not the first time that the value fashion chain has bucked the UK retail doom and gloom, despite the fact it still has no online presence.

READ: New Look’s troubles could help drive sales at Primark

Primark’s low-cost clothes and accessories have proved to be a real hit in recent years, particularly as higher inflation and stagnant wages squeeze household incomes.

Sales in the 40 weeks to June 23 were up 7% compared to the same period last year, driven by new store openings and increased overall selling space.

There was a surprise decline in like-for-like sales in the first half (-1.5%), but AB Foods said they have improved as the year has worn on driven by better trading in Europe.

No exact figure was given but analysts at UBS expect like-for-likes to fall by around 1% this year, albeit against some tough comparatives.

Primark is increasingly looking to unlock the potential across the pond in the US where it has been “encouraged” by the trading from its handful of stores.

Margins picking up

Operating margin during the 40 week-period was broadly flat at 9.8% (2017: 10.0%) with the stronger US dollar offsetting better buying.

That said, margins in the second half should be “well ahead” of the first half and last year as the effects of a strong US dollar drop out.

Primark has been tightly managing its stock, while markdowns – promotions, discounts, sales etc – will be better than expected, too.

“As a result, the profit from Primark will now be higher than expected,” read this morning’s update.

Sugar weakness to offset Primark growth

AB Foods’ overall outlook for the year is unchanged though as difficult trading in its sugar business offsets the profit growth at Primark.

An excess supply of the sweet stuff means sugar prices are declining, as they have been for some months now, and AB Foods does not expect that to turn around any time soon.

AB Sugar’s sales in the third quarter were down 17% and it expects to see another “sUBStantial reduction” in sales next year.

“As a result, our expectations for sales and profit at AB Sugar, both for this financial year and next, are lower than previously expected.”

Group sales up 3%

For the 40 weeks to June 23, group revenues were 3% ahead of the same period last year at constant currency rates. Excluding the sugar divisions, sales were up 6%.

“For the full year we expect good profit growth in Grocery, Agriculture and Ingredients,” read Thursday’s update.

“Compared to our previous expectation, we now expect a reduced profit from AB Sugar as a consequence of lower EU sugar prices and an increased profit from Primark driven by higher margins.”

“As a result, our full year outlook for the group is unchanged with progress expected in adjusted operating profit and adjusted earnings per share.”

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Thu, 05 Jul 2018 07:40:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/200168/difficulties-in-ab-foods-sugar-business-to-offset-better-than-expected-profits-at-primark-200168.html
<![CDATA[RNS press release - Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180705070003_13706250/ Thu, 05 Jul 2018 07:00:03 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180705070003_13706250/ <![CDATA[News - New Look’s troubles could help drive sales at AB Foods’ Primark business ]]> https://www.proactiveinvestors.co.uk/companies/news/199025/new-looks-troubles-could-help-drive-sales-at-ab-foods-primark-business-199025.html New Look’s recent troubles could help to reverse recent “sluggish” like-for-like sales trends at Associated British Food PLC’s (LON:ABF) Primark stores.

Sales have stuttered in recent months as consumer confidence wanes, although the value fashion retailer has managed to avoid some of the problems suffered by its high street peers.

New Look is shutting 60 stores as part of its turnaround plans, while House of Fraser has also been forced to close 31 of its department stores amid tough trading.

READ: House of Fraser confirms plans to shut 31 stores

Analysts at RBC Capital reckon those closures will help Primark, AB Foods’ star asset.

“We see potential for Primark's LFL sales to return to positive territory in H2 and FY19 owing to an ongoing strong product offer and less competition from the likes of New Look, Pep & Co and Lefties,” wrote analyst Richard Chamberlain in a research note.

“We think this should reassure investors who have been concerned about sluggish LFL sales trends and its lack of a transactional online offer.”

Chamberlain adds that concerns over Primark’s performance across the pond have been “overdone” and claims that the brand is finally starting to gain traction there.

“Primark's entry into the US in 2015 created a lot of excitement but performance has been affected by a lack of brand recognition and as it has taken time to adapt its offer for the US market.

“We think Primark has settled on the right sort of format now as a mid-sized box and its next opening in Brooklyn, New York, should be an important milestone for the brand there.”

Reflecting a general re-rating in the industry re-rating and a slight increase to his earnings forecasts, the analyst has upped his rating to ‘outperform’ (from sector perform) and has also hiked his price target to £31 from £28.

ABF shares are up 1.4% to 2,774p in early deals on Monday.

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Mon, 18 Jun 2018 09:24:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/199025/new-looks-troubles-could-help-drive-sales-at-ab-foods-primark-business-199025.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180530093945_13659592/ Wed, 30 May 2018 09:39:45 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180530093945_13659592/ <![CDATA[News - Primark owner AB Foods downgraded by Goldman Sachs ]]> https://www.proactiveinvestors.co.uk/companies/news/197639/primark-owner-ab-foods-downgraded-by-goldman-sachs-197639.html Primark owner Associated British Foods PLC (LON:ABF) has been downgraded by Goldman Sachs after the US investment bank updated its forecast assumptions for fiscal 2019.

Factoring in the strength of the dollar against sterling since the end of March, Goldman has cut £26mln off its earnings before interest and tax (Ebit) forecast, which now stands at £930mln, up 13% year-on-year.

READ: AB Foods blames weather for drop in like-for-like sales at Primark in the first half

The earnings per share forecast has been trimmed by 2% to 146.3p, up 10% year-on-year.

The changes fed through to a cut in its sum of the parts-based price target to 3,000p from 3,100p and a downgrade to ‘neutral’ on valuation grounds.

AB Foods currently trades at 2,721p, down 1.1% on the day.

It’s 2018 and you still can’t order online from Primark, what’s that all about ????????‍♀️

— Sam (@SamLR0) May 15, 2018 ]]>
Thu, 24 May 2018 11:47:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/197639/primark-owner-ab-foods-downgraded-by-goldman-sachs-197639.html
<![CDATA[News - Associated British Foods’ Primark business looks sweet, according to UBS ]]> https://www.proactiveinvestors.co.uk/companies/news/196554/associated-british-foods-primark-business-looks-sweet-according-to-ubs-196554.html Shares in Associated British Foods PLC (LON:ABF) were on the rise on Tuesday morning after analysts at UBS upgraded the foods-to-retail conglomerate to a ‘buy’.

Andrew Hughes and his team crunched some numbers and analysed a few maps and concluded that there is plenty of room for Primark – AB Foods’ top money maker – to continue to grow.

“The results suggest around 80% upside in store numbers in the UK/Europe, which should keep space contribution close to 10% for another 5-10 years,” wrote Hughes in a note to clients.

“We [also] think the share price has overreacted to the H1 space slowdown.”

READ: AB Foods blames bad weather for Primark's poor H1

That growth potential doesn’t even include any contribution from possible expansion into the US or from entries into new territories such as Poland. If Primark does indeed venture into new markets, Hughes says that will be an additional boon for investors.

On top of that, his social media analysis suggests the “adverse PR issues” in Germany – campaigners criticised Primark’s treatment of its textiles makers – looks like it could be fading.

“With gross margins also set to strengthen as FX pressures reverse, we think double-digit EBIT growth can continue even with minimal LFL. We upgrade to ‘buy’ after weakness over the last six months,” said Hughes, who repeated his price target of £31.50.

AB Foods shares rose 1.3% to £27.42 on Tuesday Morning.

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Tue, 08 May 2018 11:41:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/196554/associated-british-foods-primark-business-looks-sweet-according-to-ubs-196554.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180418152808_13609829/ Wed, 18 Apr 2018 15:28:08 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180418152808_13609829/ <![CDATA[News - AB Foods blames weather for drop in like-for-like sales at Primark in the first half ]]> https://www.proactiveinvestors.co.uk/companies/news/195118/ab-foods-blames-weather-for-drop-in-like-for-like-sales-at-primark-in-the-first-half-195118.html Associated British Foods plc (LON:ABF) has blamed the weather for a 1.5% decline in like-for-like sales at its Primark stores in the first half ended March 3.

The company said unseasonably warm weather in October hurt sales for its winter clothing ranges while icy temperatures in the last week of the period deterred customers from hitting the high street.

The so-called ‘Beast from the East’ brought snowfall and freezing temperatures from Siberia across Europe.

READ: AB Foods expects first-half profit to be in line with last year, held back by fall in sugar revenues

Total sales at Primark were, however, up 7% at constant foreign exchange rates to £3.4mln.

“Just as Primark and others in the sector were decking the shelves with coats and winter clothes, we got an unusually warm October, and the timing of the Beast from the East will hardly have boosted early sales of the Spring/Summer collection,” said George Salmon, equity analyst at Hargreaves Lansdown.

"However, that bout of unseasonably cold weather is now behind us, and in any case investors know being open to the elements is just part and parcel of the retail game."

Revenue for the group, which also includes the grocery, sugar, agriculture and ingredients businesses, edged up 3% at constant currency to £7.4mln.

Statutory pre-tax profit fell 3% to £618mln but this was because last year’s results included proceeds from the sale of the US herbs and spices business and south China cane sugar operations.

US tax cuts lift adjusted profit

Adjusted pre-tax profit, excluding last year’s disposals, climbed 1% to £648mln, supported by tax cuts in the US. The group’s effective tax rate fell to 21.3% this year from 22.7% last year on adjusted pre-tax profit.

Adjusted operating profit rose 1% at constant currency to £648mln as growth at Primark, grocery, agriculture and ingredients offset a decline in the sugar business.

“Good sales and profit growth was achieved by all of our businesses at constant currency, other than sugar, where the reduction was as expected,” said chief executive George Weston.

“Our full year outlook for the group is unchanged with progress expected in both adjusted operating profit and adjusted earnings per share."

Lower prices hurt sugar revenue 

The sugar arm posted a 12% constant currency decline in revenue to £938mln and a 24% drop in adjusted operating profit, reflecting lower sugar prices in the European Union. 

Grocery revenue increased 4% to £1.6bn and adjusted operating profit gained 9% to £159mln at constant exchange rates, driven by growth in Twinings Ovaltine, further margin improvement at George Weston Foods and a contribution from newly acquired balsamic vinegar business Acetum.

Revenue in the ingredients division grew 5% at constant currency to £720mln and adjusted operating profit rose 11% to £63mln.

Agriculture revenue increased 13% to £615mln at constant exchange rates and adjusted operating profit was up 9% to £24mln, boosted by higher feed volumes and prices.

Non-sugar divisions to achieve further profit growth 

AB Foods raised its dividend per share by 3% to 11.7p and said it expects an “acceleration in profit growth” at Primark in the second half. It also anticipates “continued profit growth from our other non-Sugar businesses”.

“These should more than offset the decline in profit at AB Sugar in the balance of the year,” the group said.

ABF plans to open 17 new Primark stores in fiscal year 2018 along with a number of relocations and extensions.

Shares rose 1.6% to 2,626p.

"ABF offers investors compelling exposure to secular growth trends in retail over the next 10 years," Liberum said, reiterating a 'buy' rating and target price of 3,500p. 

"In our view, Primark remains well positioned to take market share and drive double-digit sales growth in FY2018-19, backed by visible new space additions of 1.2m sqf per annum primarily on the (European) Continent and in the UK."

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Tue, 17 Apr 2018 07:52:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/195118/ab-foods-blames-weather-for-drop-in-like-for-like-sales-at-primark-in-the-first-half-195118.html
<![CDATA[RNS press release - Interim Dividend ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180417070501_13606731/ Tue, 17 Apr 2018 07:05:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180417070501_13606731/ <![CDATA[RNS press release - Interim Results announcement ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180417070004_13606640/ Tue, 17 Apr 2018 07:00:04 +0100 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180417070004_13606640/ <![CDATA[News - Barclays trims target price for Associated British Foods but remains confident in Primark growth prospects ]]> https://www.proactiveinvestors.co.uk/companies/news/194331/barclays-trims-target-price-for-associated-british-foods-but-remains-confident-in-primark-growth-prospects-194331.html Barclays PLC (LON:BARC) has trimmed its target price for Associated British Foods PLC (LON:ABF) (ABF) to 3,330p from 3,380p but said it remains confident in its growth prospects for the company’s clothing arm Primark.

In a note to clients, the British bank said results from the FTSE 100 food and clothing retailer for the half-year “may not prove a catalyst as such, but we certainly expect steadier news flow and commentary starting with confidence around an H2 [second-half] margin recovery at Primark (with the group currently sitting on favourable FX tailwinds – possibly ahead of current guidance).

READ: AB Foods expects first-half profit to be in line with last year, held back by fall in sugar revenues

“We expect few surprises with the results due 17 April, with the group having provided a detailed pre close (26 Feb).  Poor weather in March in the UK / Europe has been well documented in recent retail reporting, and we account for this in our estimates (FY LFL at Primark moves from -1.1% to -1.4%). We believe this only has a limited bearing on the FY group outlook,” the bank added.

Barclays was also upbeat about the potential growth of Primark: “We also expect to gain comfort on the prospects for Primark’s business on the [European] continent as well as the midterm outlook for Sugar. We do not rule out growing confidence in the proof of concept for Primark US through the course of H2, with the likelihood of a further roll-out soon thereafter.

“Based on our Food division valuations (9.1x CY18E EBITDA), we estimate Primark trades on 8.7x CY18E EBITDA, a 32% discount to Inditex (or a 3% discount to low-growth Next). Inditex is structurally higher margin / return vs Primark. However, Primark is one-fifth the size of Inditex outside of their respective domestic markets, or in only 12 countries vs 96 at Inditex. This implies Primark’s scope for long-term space growth (in CE alone) should be considerably greater.”

ABF shares were slightly lower in mid-morning trading Thursday, down 0.8% at 2,474p.

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Thu, 05 Apr 2018 10:51:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/194331/barclays-trims-target-price-for-associated-british-foods-but-remains-confident-in-primark-growth-prospects-194331.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180227162238_13547997/ Tue, 27 Feb 2018 16:22:38 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180227162238_13547997/ <![CDATA[News - AB Foods expects first-half profit to be in line with last year, held back by fall in sugar revenues ]]> https://www.proactiveinvestors.co.uk/companies/news/192157/ab-foods-expects-first-half-profit-to-be-in-line-with-last-year-held-back-by-fall-in-sugar-revenues-192157.html Associated British Foods plc (LON:ABF) shares gained on Monday as it said it expects its first-half profit to be in line with the same period last year despite being held back by a previously flagged reduction in sugar revenues.

In a trading update, the FTSE 100-listed conglomerate - which owns the Primark clothing retail chain as well as major grocery, agriculture and ingredients businesses - added that lower finance expenses and a lower effective tax rate would see adjusted earnings per share rise for the first half to March 3.

READ: AB Foods delivers mixed Christmas trading with Primark lifting sales

For the full-year, AB Food said its outlook was unchanged with "progress" expected in both adjusted operating profit and adjusted EPS.

The group said Primark's half-year total sales were expected to be up 7% at constant currency rates, with like-for-like sales down 1% over the first-half but up 1% in the second quarter.

As already indicated, it said it expects margin in the second half for Primark to be higher than that in the same period last year.

In its grocery business, AB Foods said revenue in the first half is expected to be ahead of last year at constant currency and, with progress in margin, operating profit will be well ahead driven by Twinings Ovaltine.

But the firm added that AB Sugar's revenue and profit is expected to be down on last year, in line with previous guidance, primarily as a result of significantly lower EU prices which are adversely affecting our UK and Spanish businesses.

In mid-morning trading, AB Foods shares were 1.7% higher at 2,689p.

"Solid 1H trading", says Liberum

In a note to clients, analysts at Liberum Capital reiterated a ‘buy’ rating and 3,500p on AB Foods shares.

They said: “Solid 1H trading, FY18 guidance reiterated despite a reduction in Sugar revenues driven by all other businesses”.

The analysts added: “ABF offers compelling exposure to secular growth trends in retail over the next 5-10 years. We estimate Primark can double sales and profits over the next 5 years.”

  -- Adds share price, broker comment --

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Mon, 26 Feb 2018 07:37:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/192157/ab-foods-expects-first-half-profit-to-be-in-line-with-last-year-held-back-by-fall-in-sugar-revenues-192157.html
<![CDATA[RNS press release - Trading Statement ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180226070003_13544938/ Mon, 26 Feb 2018 07:00:03 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180226070003_13544938/ <![CDATA[RNS press release - Directorate Change ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180222100031_13542368/ Thu, 22 Feb 2018 10:00:31 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180222100031_13542368/ <![CDATA[News - AB Foods delivers mixed Christmas trading with Primark lifting sales ]]> https://www.proactiveinvestors.co.uk/companies/news/190215/ab-foods-delivers-mixed-christmas-trading-with-primark-lifting-sales-190215.html Associated British Foods plc (LON:ABF) reported a 3% increase in revenue in the 16 weeks ended January 6, led by growth at its Primark stores.

The food, ingredients and retail group said it delivered revenue growth across all businesses apart from sugar, which saw revenue fall 13%.

READ: Primark well placed to take US market share, says Barclays as it upgrades parent ABF

The company expects sugar revenue and profit for the full year to drop more than previously forecast as a result of lower prices in the European Union.

Shares fell 3.5% to 2,756p in early deals. 

AB Foods still left its outlook for the group unchanged with “progress expected” in adjusted operating profit and adjusted earnings for the full year.

It also expects sugar production to ramp up during the next fiscal year after the EU’s sales quotas and constraints on exports were abolished at the end of 30 September.

Primark sales increase

Primark sales in the 16-week period rose 9% on the previous year with “strong” like-for-like sales in the UK as it increased its market share. Unseasonably warm weather in October held back sales in Europe but Primark achieved record sales in the week before Christmas and “good trading” in the five weeks leading up to the day.

The group opened five new stores during the period in the UK and in Europe, increasing its retail selling space by 300,000 square feet (sq ft).  It expects to open 1.2mln sq ft this financial year.

Operating margins in the first half are expected to be broadly unchanged from last year as tightly managed stock offset the impact of a weaker sterling against the dollar.

Mixed performance across other divisions

The agriculture business saw revenue rise 12% across the 16-week period and the company expects profit growth for the full year.

Ingredients sales fell 1%, mainly due to foreign exchange headwinds, but AB Foods sees margins improving in the full year.  

Margins in the grocery division are also expected to pick up for the full year. Grocery sales rose 1% in the trading period with the Twinings and Ovaltine brands delivering “good” sales growth.  

US tax reform benefits

The US tax reform is expected to reduce the group’s effective tax rate for the year by 100 basis points while lower interest rates on loans in Zambia and higher rates on US dollar and sterling deposits are projected to cut expenses.

Analysts weigh in on results

Henry Croft, research analyst at Accendo Markets, said: "Overall, the company has left its guidance unchanged amid a mixed Christmas stocking.

"And after a bumper Christmas, proving Primark can maintain sales to offset weakness elsewhere will be a key challenge when it publishes Q2 results in late February."

Liberum repeated a 'buy' rating and target price of 3,500p, saying: "ABF offers compelling exposure to secular growth trends in retail over the next 5-10 years over which we estimate Primark can lift sales and profits by nearly 75%."

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Thu, 18 Jan 2018 07:43:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/190215/ab-foods-delivers-mixed-christmas-trading-with-primark-lifting-sales-190215.html
<![CDATA[RNS press release - Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180118070003_13500384/ Thu, 18 Jan 2018 07:00:03 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180118070003_13500384/ <![CDATA[News - Primark well placed to take US market share, says Barclays as it upgrades parent ABF ]]> https://www.proactiveinvestors.co.uk/companies/news/190089/primark-well-placed-to-take-us-market-share-says-barclays-as-it-upgrades-parent-abf-190089.html Associated British Foods plc (LON:ABF) shares received a boost on Tuesday after Barclays Capital upgraded the stock, saying it expects the group’s Primark stores to take the US by storm.

Barclays raised its rating to ‘overweight’ from ‘equal-weight’ and lifted its target price to 3,380p from 3,290p

US prospects

“We consider Primark in the US to be as differentiated and disruptive a model as it is in the UK and Europe, and ultimately well placed to take share profitably in the large, fragmented US market,” the bank said.

“We believe Primark can build a US business the size of Europe today in 5-10 years,” it added.

The remarks come despite ABF warning late last year that it plans to reduce the size of three of its Primark stores in the US this year.

US retailers have come under pressure from a trend of heavy discounting to attract customers in a competitive market. 

“US fast fashion remains under developed whilst value is also making ground,” said Barclays.

“Adjustments to the real estate structure should enable more consistent densities and store profitability closer to Boston, opening the door to further expansion.

“With greater availability of space and less restrictive opening logistics (vs Europe), US rollout should accelerate the total space growth profile.”

READ: RBC warns AB Foods that even Primark isn’t immune to tough retail environment

In Continental Europe, Barclays expects mid-term space growth of 10% and believes “the long term high visibility structural growth story remains intact”.

France and Italy have just 15 stores, compared to 182 in the UK.  Spain, as the most mature market, can still double from here, Barclays said.

Overall, it sees ABF as a “good manager” of its portfolio of assets with a focus on long term cash generation and return on invested capital.

Shares rose 2.1% to 2,890p in early trading. 

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Tue, 16 Jan 2018 09:14:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/190089/primark-well-placed-to-take-us-market-share-says-barclays-as-it-upgrades-parent-abf-190089.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180115170440_13497060/ Mon, 15 Jan 2018 17:04:40 +0000 https://www.proactiveinvestors.co.uk/companies/rns/3716/LSE20180115170440_13497060/