UK: Primark leads way as profits surge at ABF, despite tougher time for British Sugar

Primark has made a major contribution to an increase in first half profits at parent group Associate

Primark has made a major contribution to an increase in first half profits at parent group Associated British Foods Photo: VisMedia - Credit: Vismedia

BUDGET fashion chain Primark delivered another blow to rival Marks & Spencer today by reporting six more months of booming growth.

Primark’s like-for-like sales increased 7% in the 24 weeks to the start of March, a performance described as “exceptionally strong” by owner Associated British Foods.

It was also helped by an “ideal combination” of lower cotton prices, better exchange rates and lower markdowns as operating profits surged 55% to £238million at the 257-store chain. Once 15 new store openings were factored in, sales raced 24% ahead to almost £2billion.

The retailer’s growth drove a 25% surge in adjusted pre-tax profits to £452m at ABF, which also owns British Sugar as well as household brands Kingsmill, Ryvita and Twinings.

Chairman Charles Sinclair said: “The Primark success story continues. Trading in the period was very strong, the profit margin was much improved, customers in continental Europe have taken enthusiastically to the Primark brand and there is very real momentum in the addition of selling space.”

Primark’s performance is in sharp contrast with poor clothing sales at retail bellwether Marks & Spencer, where recent cold weather and weak consumer spending drove general merchandise sales down 3.8% in the first three months of the year.

Primark added 0.7 million sq ft of selling space during the half, and new stores included a second branch on London’s Oxford Street, a relocation in Sunderland and six more outlets in Spain.

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The retailer’s European expansion is set to continue, with plans for its first stores in France in its next financial year.

However, its pace of expansion will slow during the rest of this financial year, with another 100,000 sq ft of space mainly confined to extending its Newcastle and Manchester stores.

For the full year ABF expects strong profit growth at Primark, but not at the same pace as its first half as cotton prices level out.

Revenues across the ABF group surged 10% to £6.3bn and the group lifted its dividend 10% to 9.35p per share.

Despite the squeeze on consumer spending, its grocery arm grew profits by almost 30% to £97m, boosted by a Twinings advertising drive in the UK. ABF said its bakery arm managed to recover costs in a “highly competitive” bread market.

The group’s sugar business saw operating profits dip by around 5% to £163m despite a 10% increase in revenue to £1.323bn.

ABF said the fall in profit was due to poorer trading in China, which more than offset an improvement at its African operation Illovo, combined with a charge for mothballing its two smallest factories in northern China.

UK revenues were ahead of last year, driven by higher volumes at the beginning of the financial year compared with the abnormally low level achieved last year.

The poor growing conditions during 2012, which resulted in a lower beet yield and sugar recovery, also led to this year’s UK campaign starting later and factory throughput was lower to allow for a slower filtration process.

Sugar production for the current year was now estimated to be 1.15m tonnes compared with last year’s 1.32m tonnes, said.

Overal EU sugar profits for the full year were expected to be lower than last year as a consequence of lower production volumes in the UK and Spain, and higher beet costs, it added.