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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."
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."
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.
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