AB Foods outlook sweetens despite Primark margin squeeze

Owen Stevens
April 19, 2017

Associated British Foods (ABF), the owner of Primark, has reported strong growth in interim profits, driven by a recovery in its sugar business.

Pre-tax profits jumped by 35% to £624m in the 24 weeks to 4 March, with revenues up by 19% to £7.3bn.

On a statutory basis, first-half pretax profit totaled GBP867 million, up from GBP452 million, on a revenue of GBP7.29 billion and GBP6.12 billion, respectively.

Adjusted operating profit in the latter unit rose to 123 million pounds from a restated 3 million pounds a year earlier.

"Our outlook for the group's full year results has improved and we now expect to report good growth in adjusted operating profit and adjusted earnings per share", the group said.

In his statement, the group's chairman, Charles Sinclair said the group expects the underlying revenue momentum in all of its businesses to continue in the second half.

But there were also warnings about the future: profit margins at Primark were squeezed by the strong dollar pushing up costs and this is expected to get worse in the second half.

"The growth in earnings achieved in the first half has been excellent".

Meanwhile, Primark grew sales again, increasing its share of the clothing market due to more selling space.

The U.K. -listed company has declared a dividend of 11.35 pence per share for the period, up from 10.3 pence paid a year ago.

Furthermore, he pointed to a more acceptable rate of return for AB Sugar, reaching a "turning point" as higher sugar prices met further significant savings generated by performance improvements, while group profit growth also benefited from substantial increases from the grocery and ingredients businesses.

"The impact of the USA dollar's strength on Primark's input costs have been well flagged and our commitment to price leadership in clothing retail has seen, as forecast, a decline in its operating margin", the company warned.

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