Primark defies the downturn but grocery decline hits ABF

Half-year sales at value fashion giant to rise 5 per cent
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The Independent Online

The value fashion giant Primark shrugged off the recession and the controversy over the BBC’s exposé of some supply chain practices by saying its underlying half-year sales would be up by 5 per cent, but it warned of a disappointing performance from its parent Associated British Foods’ grocery division.

John Bason, the finance director of ABF, whose other brands include Kingsmill bread, Ovaltine drinks and Silver Spoon sugar, said it had not witnessed any impact on Primark’s sales for the half year to 28 February, after the broadcaster’s programme in January, which revealed workers at a Manchester-based garment firm supplying clothes to Primark were earning less than the minimum wage in terrible conditions. “I think the numbers speak for themselves,” Mr Bason said.

Primark is outperforming many of the high street’s clothing stalwarts, notably Marks & Spencer and Next, which last month posted retail like-for-like sales down by 8.9 and 7 per cent respectively, albeit for different trading periods.

However, Primark said the cost of its new 640,000sq ft distribution centre in Thrapston, Northamptonshire, and increased overheads will pull down its operating profit margin.

Primark opened six new stores, including two in the UK and its first store in the Netherlands in Rotterdam, in the first half. It will open a further seven, including three in the UK and its first stores in Portugal and Germany – in Lisbon and Bremen – in the second half of its financial year.

“Primark is in the early stages of becoming a truly pan-European retailer, while it still has substantial growth opportunities in its domestic market,” Graham Jones, an analyst at Panmure Gordon, said.

But ABF’s grocery division will be down on last year. It said that profits at the ACH vegetable oil business in the US will be “substantially” lower as a result of stiff competition from rivals’ own-label brands and a sharp rise in the price of its Mazola oil in 2008, which has now fallen back close to previous levels. The group also said that declines at Silver Spoon and George Weston Foods in Australia, where its Tip Top bread was fighting rivals’ own-label brands, would more than “outweigh” progress elsewhere.

ABF said that profits at its sugar and agriculture division will be ahead of last year, as its European and African businesses more than offset a decline in China. Its EU unit delivered a higher- than-expected sugar crop of 1.2 million tonnes. The group said that adjusted operating profit for the half year, to be posted on 21 April, would be “slightly lower” than last year, but said it had budgeted for “little change” for its full-year adjusted earnings. After the update, Credit Suisse lowered its full-year pre-tax profit forecast for ABF by £20m, or 3 per cent, to £628m. Shares in ABF slipped 2p to 643p.

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