Associated British Foods (ABF) has become the latest consumer goods manufacturer to highlight that it is experiencing increasing inflationary pressures in raw materials, commodities, supply chain, and energy.
In a pre-close interim results trading update, the group said its Grocery, Ingredients, and Agriculture businesses have been taking steps to offset these higher input costs through operational savings and where necessary, the implementation of price increases. However, it noted that its actions on price inevitably lag input cost inflation. As a result, ABF expects some margin reduction in all three businesses at the half-year, although it does expect its plans to deliver a recovery in the run-rate of these margins by its year-end.
ABF revealed that revenue in its Grocery division during the first half was expected to be 2% ahead of last year. Its Twinings Ovaltine business was said to have performed well in the period, driven by Ovaltine revenue growth in Germany, Nigeria, Switzerland and, in particular, Thailand. Twinings revenue growth was driven by new product launches in Wellbeing teas which offset a reduction in sales from elevated levels last year through the retail channel as a result of the pandemic.
The Allied Bakeries business saw sales come below the same period last year, following its decision to exit the Co-op contract in April 2021. Meanwhile, Westmill sales were ahead of last year, aided by a recovery in the restaurant trade.
For the group as a whole, ABF is forecasting stronger half-year sales and profits after a bounce-back in business in its Primark unit. Sales at the discount clothing chain are set to jump more than 60% during the 24 weeks to 5 March thanks to the easing of the pandemic restrictions.
