- Primark profits up 51%
- Good growth in food
- 27p special dividend declared
Shares in Associated British Foods (ABF) topped the FTSE 100 leader board, rallying 4.5% to £23.91, after the global consumer conglomerate reported a 33% surge in annual profits boosted by Primark’s rising sales and significant margin recovery.
While the discount fashion chain continues to dominate the narrative at Associated British Foods, the cash-generative company also called out good growth in its food businesses and treated investors to another special dividend of 27p.
ALL EYES ON PRIMARK
Associated British Foods’ results for the year ended 14 September 2024 revealed a 33% jump in pre-tax profits to £1.96 billion on sales up 2% to £20 billion as budget clothing chain Primark’s wares continued to resonate with cash-strapped shoppers.
Despite wet weather in the UK and Ireland impacting footfall in the second half, Primark’s sales rose 6% to £9.4 billion as the value clothing seller delivered strong performances across the US, France, Spain, Italy and Central and Eastern Europe, and generated growth in the UK, which remains its largest market.
Primark’s operating profit jumped 51% to £1.1 billion as margins recovered to 11.7%, up from 8.2% in 2023 with a helping hand from falling material and freight costs.
‘Our low-cost model is as strong as ever, as we maintain our relentless focus on delivering great-value clothing and a unique store experience,’ said the conglomerate’s CEO George Weston.
He said Primark is now targeting mid-single digit sales growth in 2025 as it continues to ‘execute our store rollout programme in our growth markets in Europe and the US and to focus on like-for-like sales growth in our more mature markets’.
SUGAR AIN’T SO SWEET
While sugar sales and operating profits were strongly ahead of 2023, the company expects the recent sharp reduction in European sugar prices will ‘significantly’ impact profits in 2025 before recovering in 2026.
Grocery sales were up 4% last year, with Associated British Foods highlighting strong sales momentum at Twinings led by volume growth across its largest markets, the UK, US and France.
Russ Mould, investment director at AJ Bell, said Associated British Foods understands its audience, particularly for Primark, and it makes ‘sensible long-term decisions to help drive long-term growth. What is notable is the company achieved a strong set of results despite Primark in the UK being affected by a wet summer which, for a business reliant on footfall, was less than ideal. This was made up for by strong progress in overseas markets, lending credence to the idea the Primark offering can be a success outside of its domestic market.’
Mould stressed that Primark does things differently to most retailers. ‘It may not do online deliveries but its recent digital strategy of allowing click and collect sales helps to get more customers through the doors where they can then make additional impulse purchases,’ he explained.
‘The agriculture, grocery and ingredients businesses all chalked up a solid performance, but the sugar arm left a bitter aftertaste thanks to problems in Europe which look set to have a continuing impact in the current financial year. The company has long heralded the benefits of its diversified model, which was important during the pandemic when Primark stores were shuttered.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
