Associated British Foods Plc (ABF), the U.K. owner of Twinings tea and Ovaltine malt drink, reported a 26 percent gain in first-half profit, beating some estimates, driven by the growth of the Primark budget-fashion chain.
Pretax profit rose to 415 million pounds ($633 million) in the six months ended March 2, the London-based company said today as it increased the dividend by 10 percent to 9.35 pence a share.
Primark, which sells 1-pound electric-pink sunglasses, benefited from investment in stores, additional openings and a European customer base seeking value amid the region’s debt crisis. Still, its growth may slow as the benefit of lower cotton prices eases, while profit at the sugar division may suffer from weaker European output and lower prices in China.
“The numbers are pretty sparkling,” said Warren Ackerman, an analyst at Societe Generale in London, who has a hold rating on the stock. “The outlook is the key here and there are some near-term headwinds” at Primark and in the sugar unit.
The company said in December that profit would be weighted toward the first half and today said it continues to operate in “low-growth” markets.
Primark’s operating profit margins increased because of a lower cotton price, a weaker U.S. dollar and fewer markdowns. Still, the company expects no further benefit from cotton prices, with gains in the dollar against the pound and euro seen hurting profitability of the autumn and winter clothing ranges.
Same-store sales growth in Spain was “held back in the short term” by the number of recent openings, AB Foods said.
In the sugar division, where revenue climbed 10 percent, the company said the outcome of European Commission discussions on sugar quotas is expected in the late summer, while recent tenders have shown some fall in sugar prices.
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