April 19, 2017 / 6:23 AM / 9 months ago

AB Foods' Primark defies fears of fading UK consumer demand

LONDON (Reuters) - Associated British Foods’ (ABF.L) Primark discount fashion retailing arm traded well through Britain’s Easter holiday period, the group’s boss said on Wednesday, countering fears that British consumer demand was fading.

Industry data published earlier this month showed UK shoppers clamped down on their spending in the first quarter of 2017 as rising inflation and slowing wage growth dented disposable income.

”In clothes the effect of consumers tightening their belts is probably swamped by a later Easter, good weather and great ranges in store,” Chief Executive George Weston told Reuters.

“Maybe we’re bucking the trend in some respects but if you offer what the consumer is looking for then you can trade through difficult times,” he said after the group reported a 36 percent rise in first-half profit, sending its shares 4.6 percent higher.

Primark’s UK like-for-like sales rose 2 percent in the six months to March 4.

“We traded very well through Easter,” said Weston, referring to trading since the end of its financial half-year period.

He also said he did not expect a UK General Election, called on Tuesday, to affect demand.

However, he had detected some recent pull-back by consumers in the group’s grocery business.

“In grocery we have seen more people trading down to own label as one effect and basket sizes being pretty flat year-on-year,” he said.


Weston was speaking after AB Foods raised its profit forecast for the full year ending in September on the back of the better than expected first-half results that were driven by a rebound in its sugar business, resilience at Primark and progress at its ingredients and grocery operations.

In the six months to March 4 the company made an adjusted operating profit of 652 million pounds ($836 million) - ahead of the average of analysts’ forecasts of 623 million pounds, according to Reuters data. Revenue rose 19 percent to 7.3 billion pounds while the interim dividend was increased 10 percent to 11.35 pence.

    Operating profit from sugar jumped to 123 million pounds from just 3 million pounds last time, reflecting higher global sugar prices and the group’s move to take costs out of the business and re-shape its portfolio - selling out of its sugar cane business in southern China and taking full ownership of Illovo in Africa.

    Shares in the group, majority owned by Weston’s family, had fallen 19 percent over the last year due to concerns over the impact of a weaker pound on Primark’s profit margin. Primark accounts for over half of AB Foods’ profit.

    “Our outlook for the group’s full-year results has improved and we now expect to report good growth in adjusted operating profit and adjusted earnings per share,” Chairman Charles Sinclair said in the results statement.

    He did, however, caution that profit growth in the second half would, at current exchange rates, be tempered primarily by a smaller currency translation benefit and the full effect of the devaluation of sterling against the dollar on Primark’s margin.

    Though AB Foods lost out in the bidding for British cereal brand Weetabix to U.S. firm Post Holdings (POST.N) this week, the firm remains interested in doing other deals in grocery, where it already owns a number of food brands including Twinings Ovaltine, Kingsmill and Jordans.

    “M&A does form a part of our strategy,” said Weston, noting the group’s net cash balance of 190 million pounds at the end of the first-half period.

    Editing by David Evans, Greg Mahlich

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