ABF Associated British Foods Plc

By Nina Trentmann 

U.K. conglomerate Associated British Foods PLC is operating its food-processing factories in China at reduced capacity and is looking for alternative suppliers to prepare for a prolonged slowdown in garment production in the country as the coronavirus outbreak spreads.

The London-based owner of fast-fashion retail chain Primark relies on China for a significant portion of its supplies of clothing and accessories.

Primark, which operates 376 stores around the globe and represents about half of ABF's earnings before interest and taxes, has enough inventory for months to come, Chief Financial Officer John Bason said Monday.

"Even if there is no supply out of China during the coming months, we have enough supply to get through the summer months," he said in an interview.

Primark has about 600 suppliers in China, nine of which are in Hubei, the province where the first coronavirus cases were recorded. Many of Primark's Chinese suppliers are operating below capacity because of travel restrictions and local quarantine requirements, Mr. Bason said.

ABF has considered increasing orders from alternative suppliers in South and Southeast Asia, including in Bangladesh, Cambodia, Vietnam, Myanmar and India.

"It's all about knowing where you would go," Mr. Bason said.

Resorting to alternative suppliers would not fully cover the production gap in China, Mr. Bason said. But the fact that the group has suppliers in other regions means ABF can offset some of the production loss in China, which is "a good sign," Sophie Lund-Yates, an analyst at financial services company Hargreaves Lansdown PLC, wrote in a note to investors.

ABF also owns food brands such as Twinings tea and Patak's sauces, and the coronavirus outbreak is affecting its food-processing business in China. Its bakery ingredients unit AB Mauri, animal feed unit AB Agri and malt-drink maker Ovaltine have reduced production because of labor and logistics constraints, according to Mr. Bason. Those facilities mostly produce for the Chinese market, he said.

Mr. Bason hasn't altered his profit guidance for the financial year. The forecast includes strong growth in adjusted operating profit in the second half of the year.

Analysts at Credit Suisse Group AG said in a note that there is little reason to change forecasts at this stage.

ABF's management is discussing its contingency plans on a regular -- though not daily -- basis, according to Mr. Bason.

"The role of the CFO is to communicate during a fast-moving situation with lots of consequences to external markets," he said. "You want to give a feel of likely outcomes, even though you can't know where this is going."

Philip Waller contributed to this article.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

February 24, 2020 15:39 ET (20:39 GMT)

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