UPDATE:AB Foods Sees Good Annual Profit As Momentum Continues

8th Jul 2010 09:25

(Adds comment from an analyst and the finance director) By Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. food, ingredients and retail group Associated British Foods (ABF.LN) said Thursday it's on track for a very good full year after strong first-half momentum continued into its third quarter. The food producer and discount retailer said sales grew 13% in the 16 weeks to June 19, and 14% in the first 40 weeks of the year. "Trading for the group since the half year remains on track to deliver very good progress in earnings for the full year," the company said. The group is a major sugar producer which also makes food brands such as Twinings tea and Kingsmill bread, as well as operating the discount clothing chain Primark. The company said Primark--which now accounts for around 40% of group profit--grew sales in the third quarter by 15%. Finance Director John Bason said in an interview with Dow Jones Newswires that a slight slowdown from the first half was largely a result of the weak euro, though same-store sales growth had also slowed "a little." He said this slowdown was not a concern but rather was a result of strong comparative numbers from the second half last year, when sales grew 9%. The clothing chain has been a consistent outperformer for the group, where it is in a strong competitive position on the U.K. high street. Analysts were particularly encouraged by the margin performance at Primark. The company said this year's operating margin figure is now expected to beat last year's. Many analysts had feared that higher sourcing costs would result in a lower margin. Investec analyst Martin Deboo was encouraged by Primark's margin performance and said few retailers would have the chain's volume leverage to offset the higher costs. He added however that the company had not yet seen the worst of sourcing cost inflation. Bason admitted there were still headwinds but said the company's volumes could help offset these. "Next year, we've got to look with a bit of caution," he said. As well as higher costs for the business, he said the company had to be "cautious about the European consumer." The market welcomed the upbeat news on Primark, and by 0750 GMT, the company's shares rose 19 pence, or 1.9%, at 999 pence in a higher London market. The shares have climbed more than a quarter in the last year as it shrugged off the effects of the recession. AB Foods, which is 55%-owned by the founding Weston family, invested GBP586 million last year in a number of its divisions, growing its sugar operations in southern Africa and buying Iberian sugar producer Azucarera Ebro. Sales in the group's sugar division grew 44% in both the third quarter and the first nine months, it said. The figures were boosted by the inclusion of sales from Azucarera Ebro. Excluding this, revenue was 16% higher in the 16 week period. Bason said however that the Iberian performance was a bit softer than he'd hoped due to poor weather, with entire sugar beet fields under water in recent weeks. "There's not much you can do about the weather," he said. The European sugar market has now returned to stability following years of disruption as the European Union tried to better balance demand and supply through quota cuts. -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires July 08, 2010 04:25 ET (08:25 GMT)