UK shoppers feeling the pinch warns AB Foods

28th Feb 2011 07:19

Primark owner Associated British Foods' interim results will be in line with expectations with all segments delivering good revenue growth, but it is cautious on the UK consumer as the VAT hike starts to bite.Adjusted operating profit will be also ahead of last year with all segments except Ingredients making progress, it added.Trading at clothes retailer Primark for the first three months of the financial year was strong despite the adverse effect of bad weather during the important pre-Christmas period, but UK consumer demand has started to slow. "Since the New Year, the performance in all our operations in Continental Europe has been very encouraging but there has been a noticeable slowing down of UK consumer demand," it said.Primark's revenue will be 11% ahead of last year as a result of the increase in retail selling space and like-for-like growth of 3%. "Operating profit margin in the first half will be lower than last year reflecting the increase in VAT in the UK on 4 January 2011 and the impact on input costs arising from higher cotton prices which continue to rise," it said. Margins will remain under pressure in the second half.Elsewhere, profit from Sugar in the first half will be ahead of last year driven by substantial improvements in Spain and China more than offsetting a decline in Illovo.Grocery profit in the first half will be ahead of last year benefiting from the much reduced level of provisioning for the cost of manufacturing reorganisation. Twinings Ovaltine and the UK businesses performed well but George Weston Foods in Australia disappointed.Ingredients revenue will be ahead, but operating profit is expected to be below last year as a result of the commissioning costs of the new yeast extracts factory in Harbin, China, higher molasses prices in China and competitive pressure in the European and US yeast businesses.