AB Foods preserves earnings as currency clouds part

First-half earnings from Associated British Foods were better than expected thanks to a long-awaited improvement in its sugar business, while its Primark clothing business endured a tough Christmas and was one of several parts of the business hit by currency movements.

Revenues were down 2% to £6.1bn and profits held back to a 3% rise to £486m due to foreign exchange as while profits were well ahead in ingredients and profit margins improved in grocery and agriculture, the translation effect came down hard on Primark and British Sugar.

Earnings per share in the 24 weeks ended 27 February of 46.1p were level with the same period last year, which was better than the small decline that management had forecast.

As currency movements are now expected to be positive for the second half, directors said the full year should only see a "marginal decline" in adjusted EPS.

Ignoring the currency effect, underlying revenue was up 2% and operating profits 5% for the first half, while adjusted profit before tax rose 4% to £466m.

Like-for-like sales at Primark were less than 1% below the previous year, as expected, with total sales increased by 5% at actual rates thanks to increased store selling space but operating profit slipping 3% to £313m, or 1% at constant rates.

The turnaround at British Sugar generated a £6m operating profit from revenue down 9% to £843m, though a considerable swing to a 3% gain would have been the case if currency effects were ignored.

Agriculture revenues were down 15% to £491m and profits down 4% to £22m, while revenues at Ingredients were down 3% £595m but profit inflated 43% to £40m.

The interim dividend was increased 3% to 10.3p per share.

"These results demonstrate underlying progress for all of our businesses in the period despite currency," said chief executive George Weston.

"Good buying and selling space expansion continued at Primark, cost reduction and performance improvements contributed to a better result at Sugar, profits were well ahead at Ingredients, and profit margins improved at Grocery and Agriculture."

Cash flow was much improved, with £174m more flowing in than the same period last year, and even though capex was higher due to Primark's expansion, net debt was cut almost in half to £421m from a year ago but up from the £194m at the year end.