July 12, 2012 / 8:52 AM / in 6 years

UPDATE 2-Primark weathers storms to keep AB Foods on track

* Group revenues up 11 pct in 40 weeks to June 23

* Sees substantial rise in FY adjusted op profit, EPS

* Primark like-for-like sales continue solid H1 trend

* Shares down 0.2 pct

By Helen Massy-Beresford

LONDON July 12 (Reuters) - Associated British Foods is on course for a big rise in full-year adjusted earnings, it said on Thursday, as cash-strapped shoppers braved wet weather to snap up budget fashions at its Primark clothing chain.

The London-based food and retailing company said group revenues rose 11 percent in the 40 weeks to June 23, or 12 percent at constant currency exchange rates, also reflecting strong sugar sales.

ABF, which also sells Silver Spoon sugar and Twinings tea, said Primark enjoyed good trading in the latest quarter in the UK and Ireland despite the poor weather that kept shoppers off the streets, particularly in April.

Underlying growth in the latest quarter continued the momentum of the first half, when the chain enjoyed like-for-like growth of 2 percent, finance director John Bason told Reuters.

“Primark is trading very well despite very variable weather conditions,” he said.

Earlier in the week bellwether British retailer Marks & Spencer posted its biggest quarterly drop in sales since the third quarter of 2008/09 as the UK was lashed by the wettest April and June since records began.

Many European retailers are also struggling as disposable incomes are squeezed by rising prices, muted wages growth and government austerity measures.

Primark, which advertises red-and-white stripy bikinis for 8 pounds and men’s chinos for ten pounds on its website, said revenues rose 16 percent in the year to date at constant currency rates, or 14 percent at actual rates, hit by the weakening euro.

Primark trades from 238 stores - since opening its latest in Berlin on Wednesday - and plans to open four more by the end of the year, one in the UK and three more in Spain, where it opened four new stores in the last quarter.

“We are more confident than ever in our thesis that Primark’s expansion across Continental Europe (and in Germany in particular) will drive significant growth for ABF in the medium term,” Panmure Gordon analysts wrote in a research note.

However, the analysts cut their recommendation to ‘hold’ from ‘buy’, saying the shares were “due a pause for breath”, having outperformed over the past year.

By 0845 GMT shares fell 0.2 percent to 1,265 pence.

Spain’s economy was not hurting Primark, Bason said.

“In Spain, value-clothing as a segment of the overall clothing market is not as well-established as let’s say the UK. Primark is developing the value-clothing segment in Spain and we’re gaining share.”

In the sugar business, year-to-date revenues rose 28 percent. The group said the recent commercial environment had been strong in Europe and to a lesser extent Africa, but prices in China had continued to fall since the half-year.

ABF confirmed the end of a sugar project in Mali, led by ABF division Illovo, Africa’s largest sugar producer, amid funding difficulties and security concerns after the West African country was hit by a coup.

The group would charge 15 million pounds of pre-project expenditure as a loss on close of business, but this would be largely offset by profits from the disposal of ABF’s Polish sugar operations, it said.

Overall, Illovo’s sugar production would top last year’s and profits were on the increase, Bason said.

ABF’s grocery business - where year-to-date revenues rose 3 percent - faced fierce price competition because of pressure on UK household incomes, though the Silver Spoon sugar brand received a boost from home-baking for street parties over the Diamond Jubilee holiday weekend.

The London Olympics could also help, Bason said.

“I‘m a believer that Olympics will create economic activity for the UK economy. People will be looking to Primark in the capital. People will be eating food and we provide basic staples for food. I think the Olympics will be good for us.”

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