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AB Foods sees profit beat forecasts driven by higher sugar prices and Primark growth

Last updated: 13:50 19 Apr 2017 BST, First published: 07:40 19 Apr 2017 BST

Primark model
Primark saw a revenue increase of 12% on a comparable basis with last year at constant currency

Primark discount clothing store chain to food conglomerate Associated British Foods plc (LON:ABF) saw its first-half results beat market forecasts led by strength in its sugar business thanks to higher prices and currency factors. 

For the 24 weeks to March 4, AB Foods reported a 35% jump in adjusted pre-tax profit to £624mln, as revenue rose to £7.3bn, up 7% at constant currency, and 19% at actual rates.

Adjusted earnings per share were 59.7p, up 30% at actual rates, with adjusted operating profit up 36% to £652mln.

The FTSE 100-listed group said that its sugar businesses were the largest single driver of the group's underlying profit improvement in the first half, boosted by higher sugar prices and further significant savings generated by performance improvements.

It added that Primark's growth continued, with a revenue increase of 12% on a comparable basis with last year at constant currency.

READ: Jefferies upgrades AB Foods ahead of results ...

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The group opened 16 new Primark stores with 800,000 square-feet of selling space, across eight countries over the 24 week period, and said early trading from these stores has been ahead of expectations. 

AB Foods said Primark performed well in the highly competitive UK market with like-for-like sales growth and a strong increase in its market share, although the impact of the US dollar's strength on the store chain's input costs led to a decline in its operating margin.

Momentum continuing …

In his statement, the group’s chairman, Charles Sinclair said the group expects the underlying revenue momentum in all of its businesses to continue in the second half.

Although, he added, profit growth in the second half “will, at current exchange rates, be tempered primarily by a smaller translation benefit and the full effect of the devaluation of sterling against the US dollar on Primark's margin.”

But the chairman concluded that the outlook for the group's full year results has improved and it now expects to “report good growth in adjusted operating profit and adjusted earnings per share.”

The group’s net cash at the period end was £190mln, and it is paying an interim dividend of 11.35p, up 10% on a year earlier.

In early trading, AB Foods topped the FTSE 100 leader board, up 3.6%, or 99p at 2,817p.

Analysts at Liberum Capital reiterated a ‘buy; rating and 3,100p price target on AB Foods after what they called a “solid 1H’17 beat”.

 In a note to clients, the analysts said: “ABF offers investors compelling exposure to secular growth trends in retail over the next 10 years.“

 -- Adds share price, broker comment --

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