AB Foods Says Profit to Meet Goals on Sugar, Primark Sales

Associated British Foods Plc said second-half earnings will meet its own expectations and repeated its full-year profit target as sugar sales advanced and growth accelerated at the Primark discount clothing chain.

Adjusted operating profit for the 52 weeks ending Sept. 15 will be “substantially ahead” of last year, the London-based maker of Twinings tea said in a statement today. The sugar division’s profit will be “considerably higher” than last year, AB Foods said, helped by higher prices in Europe and increased production and prices in Africa.

AB Foods shares have gained 17 percent this year, fueled by the growth of the sugar unit and Primark, the company’s two main profit contributors. That’s helped offset a weaker performance from the smaller food ingredients division, where profit this year will be “sharply lower” because of increased raw-material costs, after sliding 46 percent last year, the company said.

“The two principal divisions of sugars and Primark appear to be more or less in line with our 2012 numbers,” Martin Deboo, an analyst at Investec, said in a note today. “However weaker-than-expected ingredients profits are a negative.”

AB Foods fell 1.5 percent to 1,287 pence at 9:30 a.m. in London trading.

Sales at Primark stores open a year or more should increase 3 percent this year, stronger than the 2 percent growth reported for the first half, the company said today.

Primark Growth

Primark’s growth has been driven mainly by openings in the U.K. and Europe, with 19 stores being added this fiscal year and a four-floor, 80,000 square-foot (7,432 square meter) second outlet on London’s Oxford Street due to open on Sept. 20.

The London Olympic Games in August drove down comparable-store sales at Primark’s existing Oxford Street store, according to John Bason, AB Foods’ finance director. Still, sales across the rest of the U.K. were “strongly up,” he said, and were “unbelievable” at Primark’s store in London’s Westfield shopping center, adjacent to the Olympic Park in Stratford.

“There was a bit of hollowing out of central London where people kept away, but elsewhere, even in the outer rims of London, we had a good Olympics,” Bason said. Primark’s sales for the year should rise 17 percent, excluding currency fluctuations, the company said today.

Australian Writedown

The company said Primark’s operating profit margin widened in the second half due to falling cotton prices, and for the year, the margin should be close to last year’s 10.2 percent. Panmure’s Jones expects a margin of 10 percent.

The company said it would take a 100 million-pound non-cash charge for the impairment of property and equipment at its Australian meat operations, which will lead to “substantially worse” profit at its George Weston Foods unit this year.

Profit at the grocery division will decline because of those costs and restructuring expenses at Allied Bakeries in the U.K. Bason said he’s seen no improvement in U.K. consumer spending, although conditions have not worsened.

“There’s a possibility we’re hitting a baseline of disposable income,” he said.

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