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Primark owner warns coronavirus could impact future supply

Lauretta Roberts
24 February 2020

Primark owner Associated British Foods (ABF) has warned that there is a risk of supply shortages on some of the retailer’s lines later in the year if factory delays in China caused by the coronavirus outbreak are prolonged.

However, it said the high street giant, which sources numerous products from China, is “well stocked with cover for several months” and does not expect any “short-term impact” as a result of the virus.

ABF said it was assessing plans to mitigate the impact of coronavirus on Primark, including the possibility of increasing production from suppliers in other regions.

The FTSE 100 firm also said it has some food operations in China, with its AB Mauri, AB Agri and Ovaltine factories in the country operating at reduced capacity due to “labour and logistics constraints”.

Senior market analyst at Nigel Frith commented: "A short-term supply shock shouldn’t have any serious impact. However, should the coronavirus outbreak disrupt supply chains over a longer period, then the impact could be grave.

"This message isn’t dissimilar to what we have heard from other firms. Yet the fact that the spread of the virus is showing few signs of slowing and is actually increasing outside of China is certainly cause for concern."

The warning came as ABF said half-year sales and operating profit growth are both expected to surpass expectations following strong sales at the value fashion retailer.

The group said Primark sales in the first half of the financial year were 4.2% higher than the same period last year, as it was boosted by recent site expansions.

It added that it was on track to post full-year figures in line with expectations, on the back of strong group sales and profits for the half year to 29 February.

Primark’s UK sales are expected to have risen 3% against last year following store expansions and openings.

Meanwhile, like-for-like sales are expected to have dropped 1.3% over the half-year period.

The firm said UK sales were “particularly good” in November and December but have “weakened” in January and February.

Elsewhere, ABF said revenues in its sugar business are expected to improve on last year due to higher EU sugar prices and increased export sales.

The firm’s grocery business has seen revenues in line with expectations, while profits have improved against last year, as the firm benefited from reduced losses in its troubled Allied Bakeries business, which produces Kingsmill bread.

It said its Twinings tea business has seen higher sales than last year, driven by growth across both black tea and herbal tea.

The coronavirus has had a widespread impact on fashion and its supply chains. In mainland China many retailers have closed stores while the epidemic is brought under control and high-spending Chinese tourists have not been travelling to Europe to buy luxury items. Meanwhile as the virus reached Italy, Giorgio Armani showed its AW20 collection in an empty room and chose to live-stream it instead of asking a large numbers of people to congregate in one place.

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