Grocery brands fuel profits at Associated British Foods

Associated British Foods (ABF), the owner of retail-chain Primark, today (5) issued a buoyant trading update for the 16 weeks up to 6 January.

The group's grocery arm clocked in a revenue of £1,414 million for the period, with ingredients coming in at £698 million. Revenue from agriculture for the same 16 weeks raked in £572 million while sugar added its own sweetness to the figures with a revenue of £825 million.

The group's grocery unit’s sales grew 4 per cent, reflecting “good demand” across a number of its international brands and regionally-focused businesses. Its international brand businesses, which include Twinings, Ovaltine, Blue Dragon, Patak’s, Jordans and Mazzetti, accounted for approximately a third of total grocery sales.

Twinings saw “strong” sales momentum led by volume growth across its largest markets, the UK, US and France. The group noted that this reflected increased distribution, particularly in the US, strong commercial execution to strengthen in-store visibility and a significant increase in investment and focus on marketing.

Growth also benefitted from recent product launches, as ABF continued to expand its presence in the wellness category, including a growing portfolio of herbal and infusion teas.

Meanwhile, its UK-focused businesses, which accounted for approximately a quarter of grocery sales, also performed relatively well.

Allied Bakeries had a “much-reduced” operating loss compared to 2023 as a result of improved sales and operational performance. Silver Spoon delivered “strong” growth, benefitting from lower pricing and a brand refresh. The group’s Ryvita brand also made good progress, supported by recent product launches and advertising.

Adjusted operating profit margin for the Grocery segment improved to 12.1 per cent overall, driving adjusted operating profit up 17 per cent to £511m. ABF noted that the margin improvement reflected an easing in input cost pressures, strong performance in its US-focused businesses, and reduced losses in Allied Bakeries, partially offset by an increase in marketing investment.

The grocery arm was boosted easing input costs, increased investment in marketing, and new product launches. Retail, however, surpassed all the other departments by taking a whopping £3,376 million in revenue. Primark saw sales inching up 7.9 per cent in the 16 weeks, with the retail chain increasing its market share to a new high of 7.1 per cent in the 12 weeks leading up to 10 December.

Looking ahead, ABF said: "We continue to look forward to a year of meaningful progress in both profitability and cash generation, with the profitability improvement being driven by a recovery in Primark margin, a marked improvement in British Sugar profitability, and by reduced losses at Vivergo.

"We also feel more confident in the delivery of the Primark adjusted operating margin in this financial year, driven by a further improvement in product gross margin. This should insulate us well against potential additional costs of supply due to the disruption in the Red Sea, should they arise."