British multinational food processing and retailing firm Associated British Foods plc (LON:ABF) reported a slump in overall profits in spite of bumper performance of its subsidiary, Primark.
Primark Performance
The clothing retailer has seen a 25% jump in profits on-year, which the company attributed to an ‘encouraging’ reaction to its spring and summer range, and was supported by a higher margin.
ABF Chief Executive George Weston commented, “Primark delivered excellent profit growth, driven by further development of our customer experience and selling space expansion”.
Driven by an increase in retail selling space, overall sales were up 4.4% on the results from the same quarter last year, though this was somewhat offset by a dip of 1.5% dip in like-for-like sales.
Associated British Foods sugar crash
These positive results however, were offset by the ongoing slump in EU sugar prices and exceptional circumstances. The dip in statutory profits for the half year, a decline of 15% to £515 million, was attributed to the loss of a private label manufacturing contract. This made up the bulk of an exceptional charge of £79 million, with a non-cash impairment of £65 million.
ABF sugar revenues fell 13% to £769 million, with the impact f contracted sugar prices felt most acutely by the firm’s UK and Spanish operations. On-year, overall pre-tax profits for ABF remained flat at £627 million.
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Adjusted earnings per share also remained flat at 61.1p and the board declared an interim dividend of 12.05p a share, up 3% on-year.
“This is a robust set of results. Profit at AB Sugar was substantially reduced but, from this period, we expect our sugar profitability to improve. The strong underlying growth in Grocery profits demonstrates good momentum. Primark delivered excellent profit growth, driven by further development of our customer experience and selling space expansion,” said George Weston.
“In the second half we expect the underlying growth in grocery to continue. Our full year outlook for Primark profit is unchanged and will reflect the expected margin reduction in the second half due to the effect of a stronger US dollar on purchases,”
“Our full year outlook for the group is unchanged, with adjusted earnings per share expected to be in line with last year.”
Associated British Foods shares have rallied 1.36% or 34.00p, with the price per share now standing at 2,540.00p 13:55 GMT 24/04/19. Analysts from Liberum Capital, UBS and Shore Capital have all reiterated their ‘Buy’ stance, while JP Morgan Cazenove and Barclays Capital have reiterated their ‘Overweight’ rating on ABF stock.