Associated British Foods has arguably the perfect recipe for our times. There is a lot to be said for some cheap and cheerful new clothes, a nice cup of tea, plenty of sugar and a hot buttered crumpet when inflation keeps outstripping wage growth, consumers are abandoning the high street, the prime minister has to deny she’s a robot live on BBC Radio’s Test Match Special, and Tony Blair – of all people – is starting to sound like the most rational politician on Brexit.
So this morning’s news of even higher than forecast operating profit from the FTSE 100 owner of Primark, Twinings, Silver Spoon and Sunblest provided some much needed cheer.
Although Brexit induced inflation has done little to help its customers or its costs, ABF has some protection with 60 per cent of sales coming from outside of the UK. In the 40 weeks to 24 June, the group had reported revenue growth of 20 per cent, with currency accounting for half of it.
Today, ABF said full-year sales at Primark are expected to be 13 per cent ahead of last year on a constant currency basis driven by increased retail selling space and 1 per cent growth in like-for-like sales. On the same comparable basis but at actual exchange rates, sales are expected to be 20 per cent ahead.
Primark has performed particularly well in the UK where full year sales are expected to be 10 per cent ahead of last year on a comparable basis, as the discount clothes store’s market share “has increased significantly”.
ABF’s revenue and profit from sugar will also be “well ahead of last year” on a comparable basis.
Meanwhile, grocery revenues from continuing businesses are expected to be level with last year, with operating profit lower – despite benefiting from favourable currency translation.
Overall, the effect of weaker sterling will contribute £85m to operating profit in this financial year, most of which arose in the first three quarters.
But, by the same token, margins have been under pressure from the slump in sterling as the company sources the bulk of its clothing in Asia and pays for it in dollars.
This morning, ABF said sterling’s weakness against the US dollar will continue to have an adverse transactional effect on Primark’s margin in the first half although a benefit from the euro’s strength is expected in the second half. At current exchange rates, ABF also expects the euro’s strength to benefit British Sugar’s margins next year.
Other costs are rising, too. Net interest expense will be at a similar level to last year but financial expenses will be higher – reflecting the effect of last year’s fall in bond yields on the group defined benefit pension scheme.
Still, shareholders can look forward to that improved our full year outlook, knowing that adjusted operating profit is even further ahead of last year. With analysts having initially forecast earnings growth of 18 per cent for the full year, that is some way ahead of the competition.
Carillion, however, has decided it must change the recipe and the chefs. This morning, the struggling construction group has changed its management team, as it attempts a turnround after a massive profit warning threatened its future.
Zafar Khan, the group’s finance director, has left with immediate effect, while its chief operating officer and managing directors for its services and construction arms will leave at the end of this month. Shaun Carter, Carillion’s group strategy director, will leave “by the end of the year”.
Their departures follow the exit of chief executive Richard Howson when the profit warning was announced over the summer.
In their place, Emma Mercer – previously finance director for Carillion’s UK construction business – has taken over as group CFO, and Andy Jones – who currently leads Carillion’s Canadian business – will become chief operating officer.
Carillion has also appointed Lee Watson as “chief transformation officer”, on secondment from consultants Ernst & Young. Carillion appointed EY to assist with a review of its finances shortly after its profit warning in July.
Carillion’s shares have plummeted more than 80 per cent this year, after it revealed a sharp increase in debt and was forced to write down the value of a number of major projects.
It has continued to take on new long-term contracts in the subsequent period – including the first major building work on the UK government’s High Speed 2 railway project – but concerns have remained that the company was struggling to put together a rescue refinancing.
And, finally, Body Shop’s new owner has pulled off something of a coup with its appointment of a new chief executive. Natura Cosméticos of Brazil – which last week finalised its purchase of the British high street chain from L’Oreal for an enterprise value of €1bn – has managed to lure none other than… an unnamed “British guy with experience in retail”!
Wow! Mr Unknown British Guy With Experience In Retail will succeed Jeremy Schwartz and is due take up his position by the end of the year.
Guilherme Leal, billionaire co-chairman of Natura’s board, told the FT:
We know that the brand, despite being global, is essentially British. We have already taken the decision to replace the CEO, and the person we will appoint in the coming two months [is]a British guy with experience in retail… We think that the British identity of the brand it’s very positive and has to be highly respected.
Quite so.
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