AB Foods profits stumble as surging Primark growth constrained by currencies

LONDON (ShareCast) - Profits at Associated British Foods (LSE: ABF.L - news) fell in the first half as the surging performance of its Primark fast-fashion chain was outweighed by a weaker sugar business. The group also adjusted its outlook for adjusted full year earnings, warning that currency headwinds were now expected to lead to a "modest decline", having previously signalled a "marginal decline".

In the 24 weeks ended 28 February, group revenue growth was held back by sterling strength to just 1% to £6.25bn, rising 3% on constant currencies, while adjusted operating profits were down 5% to £474m, or a just 2% if forex is ignored.

Sterling was stronger against most of the group's major operating currencies in the first half, particularly the euro.

The exception is the surging dollar, which causes ABF further pain, as it does most of its buying in this currency and most of its selling in pounds and euros.

Adjusted earnings per share rose 1% to 46.1p and the dividend was lifted 3% to 10.0p.

The Primark high street clothing chain grew sales 12% to £2.5bn, 15% at constant currencies, with operating profit up 8% to £322m, or 11% if ignoring FX.

This was driven by an 11% increase in retail selling space and exceptionally high sales in the 10 stores opened during the last 12 months.

Management said its plans for much-anticipated entry into the north-east USA were well advanced for a launch in seven stores late this year, with further management hires made during the period.

The food businesses were dominated by the continuing decline of the sugar arm as EU sugar prices dwindled substantially, dragging previous profits into a marginal operating loss.

The recovery at the ingredients segment continued with a robust increase in profit, agriculture maintained its recent trend of operating profit growth, and grocery continued its own trend of margin improvement in what remains a difficult trading environment.