"Outstanding" Primark Boosts Associated British Foods

LONDON -- Associated British Foods  (LSE: ABF  ) reported that interim results would be "above expectations" for the first half, in a pre-close trading statement released this morning. Adjusted operating profit and earnings per share will be higher than last year, while net financing costs in H1 will benefit from "a strong cash flow and lower net debt during the period."

Retail
Primark was the primary driver, with management describing sales as "exceptionally strong." They are expected to be 23% ahead of the same period last year and 25% ahead at constant currency, driven by very strong organic sales growth, a substantial increase in retail selling space, and superior sales densities in the larger new stores. 

In addition, the benefit of lower cotton prices and better trading was reflected by much higher operating profit margins compared to H1 2011/12, although no further margin benefit from lower cotton prices is expected in the second half. Elsewhere, a 7% increase in like-for-like growth benefited from good trading over the Christmas period as well as a return to more normal seasonal temperatures compared to the weak sales seen during the unseasonably warm autumillion of 2011.

Fifteen new Primark stores were opened in the period, including six in recession-hit Spain and four in the U.K., including the second store on London's Oxford Street, with 82,000 sq. ft. of selling space. Two new stores were opened in Germany, another in the Netherlands, and two first stores in Austria. Associated British Foods stated that "this pace of store openings will not continue for the remainder of this financial year but we expect it to pick up again in the next financial year."

Sugar
As expected, profits from Sugar will be lower than last year after the company's declaration over the lower sugar production following poor growing conditions, which resulted in higher sugar prices and not helped by a weaker euro. U.K. operations now estimate sugar production for the current year of 1.15 million tons, compared with last year's figure of 1.32 million tons. 

ABF's South African operations Illovo saw an improvement, though this was "more than offset by a decline in China and a non-cash charge for the mothballing of our two smallest beet sugar factories in north China." The company went on to comment: "It is anticipated that sugar prices will continue at this level for some time and we have sought to reduce our cost base."

Grocery, agriculture, and ingredients
In Associated British Foods' other markets, grocery is expected to produce revenue in line with the previous year while profits should improve substantially as it benefits from "the non-recurrence of restructuring costs in George Weston Foods in Australia and Allied Bakeries." Agriculture will see revenue ahead of last year, "driven by U.K. feed sales and AB Vista," while ingredients expects revenues level with last year, although 6% higher at constant currency.

Foolish final thoughts
Shares in the company dipped on the announcement, falling as low as 1,782 pence after previously closing at 1,830 pence but rebounding up to 1,814 pence, representing a 1% fall. No doubt a lot of ABF's growth was already priced into the shares, while the dip could also easily be attributed to profit taking.

ABF was one of the FTSE 100's best performers last year, and has begun 2013 very strongly. A forecast yield of 1.7%, as well as the company's aforementioned threefold increase in share price over the last five years, place Associated British Foods as a growth share favorite.

If you're searching for a growth share to add to your portfolio, you could do worse than to check out our latest free report, "The Motley Fool's Top Growth Share for 2013." The company our analysts have pinpointed has lifted its earnings per share by 46% since 2009, and owns subsidiaries that might carry "considerable value" not reflected within the shares. Just click here to get your copy delivered to your inbox immediately.

link


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2277435, ~/Articles/ArticleHandler.aspx, 12/22/2014 4:21:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement