AB Foods says effect of coronavirus on supply chains ‘continues to evolve’

Primark owner Associated British Foods warned on Monday there was a risk of shortages of some clothing lines later this year if delays in factory production in China are prolonged because of the coronavirus.

The virus has killed 2,442 and infected 76,936 people in China, and slowed growth in the world's second largest economy.

AB Foods, which sources more than 40 percent of Primark's product from China, said it typically builds inventories in advance of Chinese New Year, meaning it is well stocked for several months and does not expect any short-term impact.

The group, which maintained its overall financial guidance for the full 2019-20 year, said it was working closely with its suppliers in China to assess the impact of the virus on their factories and supply chains and their ability to fulfil its current orders.

"If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases," it said.

"We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions."

AB Foods also owns major sugar, grocery, ingredients and agriculture arms. Several of its food businesses have operations in China.

It said the China sugar processing campaign was completed in January before the coronavirus outbreak developed significantly.

However, its AB Mauri, AB Agri and Ovaltine factories are operating at reduced capacity because of labour and logistics constraints caused by the virus outbreak.

Finance director John Bason said the impact was not material to the overall group.

For its first half to Feb. 29, AB Foods forecast sales and operating profit ahead of the previous year.

Revenue in the grocery business is expected to be in line with last year, with higher sales at George Weston Foods in Australia and the first contribution from Anthony’s Goods in the US offset by lower sales at Allied Bakeries.

The company said the fire at Wakefield Speedibake factory in early February has resulted in in significant damage.

Twinings revenues were ahead of last year, driven by growth in black teas and excellent sales of herbal teas. AB World Foods achieved good sales growth in the period, driven by strong sales at Blue Dragon in the UK and increased Patak’s sales in Europe and North America.

Allied Bakeries revenues declined, but the company said it has reduced the operating loss with the ongoing cost reductions programme.

The group's outlook for the full-year was unchanged, with progress expected, on both a reported and a lease-adjusted basis, in adjusted earnings per share (EPS).

(With Reuters Inputs)