Associated British Foods enjoys sugar rush

The lousy summer does not seem to have prevented shoppers from popping out to Primark, while in other parts of the Associated British Foods empire, the group has enjoyed a sugar rush.

The group's adjusted operating profit for the second half of its financial year, which runs to the middle of September, will be well ahead of last year, albeit in line with expectations.

Investment in new stores for Primark increased in the second half and will be ahead of last year for the year as a whole. Capital expenditure for the group will be lower than last year as a number of major, long-term projects have completed.

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The cash inflow before financing in the second half will be much better than last year with the benefit of higher profit, lower capital expenditure and a higher working capital inflow. Taking into account the recent acquisition of Elephant Atta, the ethnic flour brand, the level of net debt at the fiscal year-end is expected to be below £1.2bn, compared with £1.3bn a year earlier.

The report card for the group as a whole shows top marks for the Sugar and Primark divisions, a mixed showing for Grocery and Ingredients, while in Agriculture it is a case of more of the same.

PrimarkSales at Primark for the full year are now expected to be 17% ahead of last year at constant currency and will be 15% ahead at actual exchange rates. That represents an improvement on the 11% growth rate (at actual exchange rates) seen in the first 40 weeks of the financial year.

Like-for-like (LFL) sales growth at Primark is expected to be 3% for the full year, compared to 2% LFL growth at the halfway point. The group said summer trading in the UK was particularly strong while sales in continental Europe remained buoyant.

While sales in shops open for a year or more continued to do the business, trading in newly opened stores exceeded expectations.

"The opening of the new store in Berlin in July saw our most successful first day's sales ever," the group declared. "Early sales of the autumn/winter range have been encouraging," the statement added.

Operating margins recovered a tad in the second half of the year as a result in cotton prices, and margin for the full year is now expected to be on or around last year's level.

SugarSugar revenue in the second half of the fiscal year has been substantially ahead of the corresponding period of 2011. Profit for AB Sugar for the full year will be considerably higher than last year with the benefit of European and African revenue increases and a strong operational performance.

In China, profit will be considerably lower as a result of weaker domestic selling prices.

AgricultureThe Agriculture's revenues will be ahead of last year but profit is expected to be in line with last year.

The UK feed business enjoyed higher volumes of beet feed but saw pressure on margins in the pig and poultry feed markets.

In the group's Frontier unit, high crop prices underpinned good farm profitability and the company saw continued high demand for fertiliser, seed and crop protection products.

GroceryGrocery revenues for the full year will be ahead of last year, but adjusted operating profit will show a decline, reflecting restructuring costs at George Weston Foods in Australia and Allied Bakeries in the UK, margin declines at Allied Bakeries and the difficult retail and competitor environment in Australia.

The latter has prompted the company to take an impairment chance of A$150m on the carrying value of the meats business.

Ingredients

On the subject of write-downs, although revenues in the Ingredients division will be similar to last year, operating profit will be sharply lower, reflecting restructuring charges and the operating difficulties faced by AB Mauri, the group's yeast and bakery ingredients business, where the business has been unable to fully pass on raw material price increases to the customer.

JH