LONDON BRIEFING: AB Foods says Primark sales growth hit by 'pingdemic'

(Alliance News) - Associated British Foods on Monday said both its food units and its Primark retail business topped profit expectations in the fourth quarter, despite being hit by the 'pingdemic' in the UK.

AB Foods said fourth-quarter adjusting operating profit in its foods units and at Primark "is anticipated to exceed our expectations". Primark saw sales come in lower than expected, though margins improved, the company explained.

"For the full year, we now expect AB Sugar to deliver an even greater improvement in adjusted operating profit over last year than previously expected and Primark's adjusted operating profit, stated before repayment of job retention scheme monies, to be ahead of last year," the company said.

Group adjusted operating profit for the financial year ending September 18, also before furlough repayments, is expected to top last year's levels, benefiting from an extra trading week.

At AB Grocery, which includes the Twinings tea and Silver Spoon sugar and sweetener brands, annual revenue is expected to rise. AB Sugar will post a 7% annual revenue hike, the agriculture arm AB Agri has seen sales "well ahead of last year", and the Ingredients unit also will post a revenue improvement.

At fast-fashion retailer Primark, sales in the second half of the financial year are expected to come in at GBP3.4 billion.

"Primark's operating profit margin in the second half, stated before the charge for repayment of job retention scheme monies, benefited from a significant reduction in store labour costs and lower store operating costs and is expected to be over 10%," AB Foods explained.

Third quarter like-for-like sales were up 3% on pre-pandemic times but in the fourth quarter, sales have been hurt by lower footfall levels and the spread of the Delta variant.

"In the UK, our sales were affected by the rapid and significant increase in late June and early July in the number of people required to self-isolate following contact tracing alerts - the 'pingdemic'. Data shows that high street footfall was impacted by the caution displayed by many consumers at that time. The self-isolation rules were then eased in early August," AB Foods explained.

In addition, the company cautioned that virus restrictions have slowed its store rollouts and a stronger pound will result in a currency exchange hit of around GBP35 million for the full year.

AB Foods shares were down 1.6% early Monday.

Here is what you need to know at the London market open:

----------

MARKETS

----------

FTSE 100: up 0.5% at 7,062.94

----------

Hang Seng: down 2.0% at 25,681.48

Nikkei 225: closed up 0.2% at 30,447.37

DJIA: closed down 271.66 points, or 0.8%, at 34,607.72

S&P 500: closed down 34.70 points, or 0.8%, at 4,458.58

Nasdaq Composite: closed down 132.76 points, or 0.9%, at 15,115.49

----------

EUR: down at USD1.1781 (USD1.1828)

GBP: down at USD1.3805 (USD1.3845)

USD: up at JPY110.11 (JPY109.85)

GOLD: down at USD1,788.44 per ounce (USD1,795.25)

OIL (Brent): up at USD73.44 a barrel (USD72.67)

(changes since previous London equities close)

----------

ECONOMICS AND GENERAL

----------

Monday's Key Economic Events still to come

14:00 EDT US monthly Treasury statement

----------

UK Prime Minister Boris Johnson is "dead set" on avoiding further lockdown, press reports have suggested, as he prepares to set out his plan to get the country through coronavirus over the autumn and winter. Johnson is expected to address the country via a press conference on Tuesday to underline how vaccinations will be a central part of the response to coronavirus in the coming months. Although a number of measures to control Covid are set to be loosened, The Daily Telegraph reported that the PM would tell members of Parliament and the country that "we need to learn to live with Covid" and that vaccines would provide the main defence. A senior government source told the newspaper: "The autumn and winter do offer some uncertainty but the prime minister is dead set against another lockdown." It comes after Health Secretary Sajid Javid said on Sunday that there was a "whole toolbox" of measures in place to help control Covid, but that vaccine passports would not be one of them.

----------

The UK government has set out a projection for how it expects GBP650 billion of public and private infrastructure investment to be spent across the country over the next decade, as it says its economic plan is working. The latest national infrastructure and construction pipeline was launched on Monday, with the government saying it was the most ambitious yet and would support 425,000 jobs a year over the next four years. The pipeline sets out how a record GBP650 billion of private and public investment will be implemented in infrastructure projects across the country over the next 10 years, creating new opportunities for thousands of apprentices, technicians, graduates and skilled workers, the government said, as it claimed it showed its "levelling up" agenda was working.

----------

Centrist Senate Democrat Joe Manchin flexed his political muscle on Sunday, warning the White House and US lawmakers returning from summer break that he could doom President Joe Biden's immense USD3.5 trillion spending package unless they hit the brakes and forge a compromise. Washington has spent the last few weeks consumed with geopolitical unrest including America's chaotic exit from Afghanistan, as well as the 20th anniversary of the September 11 attacks. But Capitol Hill returns to work this week focused on the domestic agenda, and in a series of talk show appearances West Virginia's Manchin sounded the alarm about overspending. "What's the urgency?" Manchin said on CNN show State of the Union, stressing that tens of billions of dollars in aid has yet to be spent from the massive federal injections last year and early 2021 to help the economy recover from the coronavirus pandemic.

----------

BROKER RATING CHANGES

----------

BERENBERG CUTS CAIRN ENERGY TO 'HOLD' (BUY) - PRICE TARGET 215 (235) PENCE

----------

BARCLAYS INITIATES GB GROUP WITH 'EQUAL WEIGHT' - TARGET 865 PENCE

----------

JEFFERIES CUTS GAMMA COMMUNICATIONS TO 'UNDERPERFORM' ('HOLD') - TARGET 1550 PENCE

----------

COMPANIES - FTSE 100

----------

Jet engine maker Rolls-Royce and aerospace and defence contractor Babcock International have sold their respective stakes in the AirTanker Holdings joint venture to Equitix Investment Management. The duo will sell their stakes in AirTanker Holdings, which holds assets used by a joint venture that provides aviation services for the UK Royal Air Force's Voyager fleet. Rolls-Royce, which owns just over 23% of the JV, will net GBP189 million. Babcock, with just over a 15% holding, will receive GBP126 million. Rolls and Babcock each will retain their 23.5% stakes in AirTanker Services, the fleet operator. "The sale is part of Babcock's ongoing targeted disposal programme, which aims to generate at least GBP400 million of proceeds. Proceeds from this transaction will be used to reduce net debt," Babcock said. Rolls-Royce said the sale will go towards its aim of achieving GBP2 billion through disposals.

----------

COMPANIES - FTSE 250

----------

Ascential said it has acquired OneSpace, a content optimisation firm serving brands trading on e-commerce marketplaces. Ascential didn't provide the purchase price for OneSpace, which is based in near St Louis, Missouri and has 96 staff.

----------

COMPANIES - MAIN MARKET AND AIM

----------

S4 Capital saw revenue almost double in the six months to June 30. Revenue jumped 98% to GBP279.3 million from GBP141.3 million. The advertising firm's pretax loss widened, however, to GBP19.4 million from GBP1.0 million a year earlier. Adjusting items of GBP47.4 million, up from GBP14.9 million a year earlier, drove the widened loss. Adjusting items including acquisition payments, amortisation and share-based compensation. "We have had a super strong first half start to 2021, in line with the fast-growing digital platforms. Even in comparison to 2019, we are up strongly, again more like the digital platforms. It is clear that the tragedy of Covid-19 has accelerated the speed of digital transformation and disruption at consumer, media and enterprise levels," Executive Chair Martin Sorrell said, adding: "After only three years, on our third birthday as a listed company and with a market capitalisation of around six and a half billion dollars, which is well in to the top 125 FTSE companies, we are now in a position to build even stronger value-adding relationships with tech, healthcare, financial and [fast-moving consumer goods] clients amongst others."

----------

Ryanair Holdings boss Michael O'Leary has warned that prices will increase as passengers rush to holiday in Europe next summer. O'Leary said this huge demand for holidays would coincide with fewer flights, meaning a price rise for flights and also for hotels. In an interview with The Sunday Times, he said: "I think there will be a dramatic recovery in holiday tourism within Europe next year. And the reason why I think prices will be dramatically higher is that there's less capacity. "Take out Thomas Cook, Flybe, Norwegian – Alitalia's reducing its fleet by 40%. There is going to be about 20% less short-haul capacity in Europe in 2022 with a dramatic recovery in demand." Ryanair prices will be cut this winter, to "grab market share everywhere", O'Leary said.

----------

COMPANIES - GLOBAL

----------

Fintech firm Ant Group's Alipay online payments unit could be broken up under regulatory plans being drawn up in China, the Financial Times reported. Beijing wants to create a separate app for Alipay's loans business, the newspaper reported. Plans would see Alipay parent Ant Group give user data, which it utilises to make lending decisions, to a new joint venture, which the Chinese government would part own. The FT report comes as China's technology sector increasingly becomes subject to regulatory scrutiny. Chinese authorities on Thursday ordered gaming giants Tencent Holdings and NetEase to end their focus on profits and cut content perceived to be breeding "effeminacy", as Beijing attempts to direct youth culture, gender ideals, and the reach of big tech.

----------

Monday's Shareholder Meetings

FirstGroup PLC - AGM

Warehouse REIT PLC - AGM

----------

By Tom Waite; thomaslwaite@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.