Apr 20, 2010
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Primark, recovery help AB Foods top forecasts

Apr 20, 2010

By David Jones

LONDON (Reuters) - Primark owner Associated British Foods said the global recovery was underway, prompting it to predict a "very good" rise in annual earnings after beating forecasts with half-year profits up 20 percent.


The London-based food and retail group reported strong momentum in many of its businesses around the world and even Britain showed signs of consumers trading up to more expensive products which helped to boost its shares to record highs.

"The global economic recovery is strongly underway, there are strong signs in the U.S. and China is growing strongly," Chief Executive George Weston said in an interview.

Shares in AB Foods jumped nearly 6 percent to a new high of 10.17 pounds and were trading up 5.5 percent at 10.11 pounds at 12:14 p.m. after the profits beat and the upbeat outlook prompted earnings upgrades for the full year to mid-September.

These were led by analyst Graham Jones at brokerage Panmure Gordon, which works as an advisor to ABF. He raised his annual earnings forecasts by 6 percent to 67.5p, pretax profits also by 6 percent to 790 million pounds, to both show a rise of 21 percent from the previous year.

"ABF has delivered an impressive H1 performance, with strong profit growth across the major divisions... With a confident outlook, we are upgrading our full-year earnings forecasts," Jones added.

Analysts added the group is benefiting from the strong recovery at its sugar and grocery businesses after heavy investment and a pickup in demand, while Primark's growth continues to outperform its high street rivals.

The company which markets Silver Spoon sugar, Mazola vegetable oil and Ovaltine drinks, posted underlying pre-tax profits of 331 million pounds for the half-year to February 27 beating a consensus forecast of 315 million pounds in a Reuters survey of seven analysts.

The half-year dividend rose 10 percent to 7.6p a share.

The group, 55 percent owned by the family of Chief Executive Weston, forecast very good progress in earnings for the full year to mid-September but did not give further details.

"There is strong momentum in a number of our businesses reflecting the recovery in a number of parts of the world. The UK is showing signs of consumers trading up with Twinings teas and in food service," Weston added.

Its 196-strong Primark discount fashion retail chain, which earns a third of group profits, was driven by an 8 percent rise in like-for-like sales, with overall sales up 19 percent due to new openings and profits ahead 18 percent at 144 million pounds.

This was helped by an exceptionally strong performance from its relatively new 14 Spanish stores, and three more are set to open in its second half along with three more in the UK to make six new store openings by mid-September.

The chain has ridden out the recession with its cheap chic clothes proving a hit with cash-strapped shoppers, but last week it moved to stop selling padded bikini bras for girls as young as seven after criticism over the sexualisation of young girls.

Sugar profits rose strongly helped by a good beet sugar harvest in the UK and recovery in China, while its grocery unit profits rose 53 percent as Twining and Ovaltine saw strong sales growth after last year's restructuring.

(Editing by Mike Nesbit and Louise Heavens)

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