Associated British Food (ABF) has warned that a recovery in profit margins in its food divisions would be delayed as price rises would not be enough to offset the increase in energy and commodity costs accelerated by the war in Ukraine.
“All our food businesses are experiencing increasing inflationary pressures in many areas including raw materials, commodities, supply chain and energy,” ABF chairman Michael McLintock said in the group’s half-year results statement.
“Action has been taken to offset these higher input costs through operational cost savings and, where necessary, the implementation of price increases.
“As a result, we now expect a greater margin reduction in these businesses than previously expected for the full year.”
Despite inflationary pressures, ABF reported food sales were up by 6% to £4.3 billion.
Revenues in its grocery sector rose 2% to £1.82 billion over the 24 weeks ended 5 March despite retail volumes bouncing back to more normal levels after Covid lockdowns.
Additionally, the business noted that it faced operating constraints as a result of supply chain disruption and Covid-related absences, and took a hit from Allied Bakeries exiting the Co-op contract in April last year.
Operating profit margin fell 9% to £175 million after high levels of input cost inflation, especially in Allied Bakeries – where sales were ‘well below’ the same period last year.
Price rises have already been implemented and more are in hand to mitigate subsequent cost increases.
The company highlighted that its Twinings Ovaltine business had performed well, driven by Ovaltine revenue growth in Switzerland and Germany and some recovery in Thailand.
In Twinings, further new product launches of Wellbeing teas offset a reduction in the retail sales of other teas from Covid-elevated levels last year.
“Our food businesses have once again proved their operational resilience and Sugar had another strong period, building on its recent track record of recovery,” ABF chief executive George Weston said.