Primark drives AB Foods profit rise

Updated: Tuesday, 23 Apr 2013 16:04

Associated British Foods has predicted its Primark discount clothing chain would remain Britain's fastest growing major retailer this year.

But it said its profit growth would moderate amid higher cotton prices and a weak economy.

A 55% jump in Primark's operating profit in the six months to March 2 drove a 20% increase in AB Foods' group total to £496m sterling, beating analysts' average forecast of £485m.

Many British retailers have been finding the going tough as consumers fret over job security and a squeeze on incomes.

Primark, which trades as Penneys in Ireland, has been one of the few to buck the gloom.

Sales at stores open over a year increased 7% in its fiscal first half, while its margins rose 2.4 percentage points to 11.9%, helped by lower cotton prices and a weak US dollar.

But AB Foods said Primark's trading had been weaker during the prolonged period of cold weather since the new year and flagged pressure on margins for autumn/winter ranges due to a renewed rise in cotton prices, which would hold back profit growth.

"7% like-for-likes are clearly extraordinary, even if it comes off a bit through the second half we will be the stand out retail performer in the UK market," chief executive George Weston said.

Primark's performance and a 29% rise in profit from the group's grocery division, whose brands include Twinings, Ryvita and Ovaltine, more than offset a 5% fall in its sugar business, where a better performance from the main Illovo business was outweighed by a decline in China.

Group revenue was up 10% to £6.33 billion, underlying earnings per share (EPS) rose 22% to 41.9 pence and an interim dividend of 9.35 pence, up 10%, is being paid.

For the full 2012-13 year AB Foods forecast "good progress".

Shares in the group, 55% of which are owned by Weston's family, have risen 51% over the last year.

Separately Premier Foods, the maker of Hovis bread and Mr Kipling cakes, posted a 1% rise in first-quarter sales and said it was confident squeezed consumer markets would not derail progress in 2013.

The group, which made a string of disposals in 2012 but still finished the year with net debt of £950m, said it had no plans for more brand sales and it was not currently working on any refinancing.