Associated British Foods (ABF), the owner of discount fashion retailer Primark, has reported a 30% decrease in profits despite increased sales across its businesses during the first half of the financial year.
According to ABF, the decline at its sugar operations AM Sugar was to blame for the decreased pre-tax profit, which fell from £895m to $623m in the first half of 2017. As a result, shares have dropped more than 1.7%.
AB Sugar has been struggling since the removal of sugar sales quotas by the EU resulting in falling sugar prices.
The operating profit from the sugar business decreased by 27% to £90m in the 24 weeks to 3 March, with revenue decreasing 13% to £938m.
Primark, however, has seen an increase of 8% in its revenue to £3.5bn, and a 6% increase in operating profit to £341m compared with £323m last year.
ABF said it expected ‘an acceleration in Primark profit growth in the second half, as a result of an improvement in margin over the same period last year’. It also plans to open nine new Primark stores in the second half of the year.
City Index senior market analyst Fiona Cincotta said: “Profits have come in a tad below guidance but these are still a solid set of numbers.
“The 1.5% fall in like-for-like sales at Primark isn’t very far below company guidance for a 1.0% drop. Crucially, management is still confident that margins will improve in the second half.
“Primark hasn’t been immune to the freezing late-winter conditions that hurt other retailers, but the damage was mostly confined to Northern Europe. The UK business performed commendably under the circumstances, helping Primark grab even more market share at home.
“There’s plenty of room left for growth. Compared to other fast-fashion retailers, such as Zara, Primark has a relatively small international footprint—and a cheaper offering to boot.”
ABF ‘s grocery division, which includes Twining’s, Kingsmill, Ovaltine and Dorset cereals, posted a 1% increase in revenue to £1.67bn, and 5% increase in profits.
The grocery division owes Ovaltine for its positive results, due to brand’s strong growth particularly in Thailand and Switzerland.
The group said it expects higher profits from Primark in the future, and said that continued profit growth in its non-sugar businesses should ‘more than offset the decline in profit at AB Sugar in the balance of the year’.
ABF chief executive George Weston said: “The group made progress in this period. Good sales and profit growth were achieved by all of our businesses at constant currency, other than sugar, where the reduction was as expected.”
“Our full year outlook for the group is unchanged with progress expected in both adjusted operating profit and adjusted earnings per share.”