Full year revenue rose 22% to £17.0bn, ignoring the effect of exchange rates, largely driven by a 40% increase at Primark to £7.7bn. The group benefitted from increased traffic as shops reopened this year. UK like-for-like sales are broadly in-line with pre-pandemic times, although continental Europe was weaker because of “cautious” customer sentiment.
ABF’s various food businesses also did well, with sales growing 10%, reflecting increased prices. This included a 3% increase in Grocery revenue (22% of group revenue), partly because of strong Ovaltine sales.
Group underlying operating profit rose 38% to £1.4bn, thanks to improved margins at Primark. Cost inflation meant profits were level in the food divisions. ABF had gross investment of £930m, up from £721m, partly reflecting higher spending on technology and automated warehouses.
The timing of inventory deliveries meant there was a cash outflow in the year, and net debt, including lease liabilities, was £1.8bn.
Looking ahead, ABF warned significant cost inflation and wider volatility has made forecasting more difficult. Sales are expected to grow, but profits are predicted to fall, in the next financial year.
The group announced a £500m share buyback programme. There was a final dividend of 20.5p.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown:
“Primark is experiencing significant cost inflation and a very uncertain demand backdrop. Despite this, it’s vowed to keep prices steady following a recent round of increases. This is an integral part of the group’s ability to keep customers coming through the doors. Without being the affordable name on the high street, Primark loses almost all its bargaining power. Primark is well aware that pushing prices too far will do nothing but alienate its core customers. The launch of a click and collect trial will be lauded by fans of the shop, which despite recent revamps, still leaves a lot to be desired on the website front. While disappointing, it’s the lack of large scale delivery infrastructure that helps Primark keep its prices at attractive levels.
The next few months will highlight the extent of the high street’s polarisation. Heading into the Christmas season it’s highly likely that customers are going to trade downwards, and shop in places like Primark, when they may have previously been more of a middle-market consumer. This should ultimately benefit Primark, but might not necessarily be enough to offset the loss of existing customers who hold back on frivolous spending.
Luckily, Primark belongs to a wider group – Associated British Foods. The eclectic mix of food and ingredients businesses offer a level of diversification other high street giants can only dream of. While the cost landscape for these divisions is tricky too, as a longer term source of cushioning, they’re not to be knocked. Despite the prospect of falling profits next year, the group’s embarking on a £500m share buyback programme. That’s a signal that management believes the recent bruising to the group’s valuation has been overdone, but there could be further pain to come depending on how the crucial Christmas period fares.”
