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Profits jumped more than a third at the owner of Primark as the sprawling business returned to “some normality” in its first half following years of supply chain upheaval, sending its shares up almost a tenth.
Associated British Foods, which also owns food brands Ovaltine and Ryvita, posted a 37 per cent increase in pre-tax profit to £881mn for the six months ending March 2, up from £644mn a year earlier. Group revenue edged up 2 per cent to £9.7bn.
Chief executive George Weston said the performance was driven by investments in the company over the past few years such as opening new stores or automating some warehouses, and profit margins “recovering accordingly to more normal levels”.
“We’re also not wrestling with supply chains, we can get what we want more or less when we want it,” he told the Financial Times, after the pandemic led to depleted inventories and delays in transporting stock.
The conglomerate now expects a “significant growth in both profitability and cash generation” this financial year, having in January forecast “meaningful progress” in both metrics.
It will pay an interim dividend of 20.7p per share on July 5, an increase of 46 per cent on the previous year, “reflecting the growth in earnings”.
Shares rose almost 10 per cent in morning trading to around 2,743p, taking them up more than 30 per cent in the past 12 months.
Weston said that ABF did not increase prices during the period although it had benefited from rises implemented last year as inflation subsided.
He added that “not all inflation has reversed”, saying that labour costs also remained elevated in most countries it operates in.
Weston said profit margins in “food and in Primark” were “kind of in the ballpark of the historic normal margins. We’ve just seen a recovery to where we would always have been.”
Sales at Primark, the FTSE 100’s jewel in the crown, rose 6 per cent to £4.5bn, while adjusted operating profit jumped 45 per cent to £508mn, in spite of continued “cost of living pressures”. The division’s adjusted operating profit margin rose to 11.3 per cent from 8.3 per cent.
“We are seeing basket sizes creep up, so it’s not as if there’s been no improvement in volume. It’s just early days and small,” said Weston.
“I think when the weather improves, we’ll be able to have a better read on whether increased disposable income is flowing through or not. The big one, of course, is interest rates, when they start to come down . . . we’d expect to see a more exuberant return to shopping.”
Primark will expand its click and collect service across the UK but Weston reiterated that the economics of home delivery still did not make sense given its low prices and the costs associated with it.
