Sugar sours AB's profits

By THIS IS MONEY
Updated: 07:21 EST, 11 September 2006

ASSOCIATED British Foods today said it expected a reduction in second-half earnings as it reported contrasting fortunes at Primark and its sugar business.

The firm said tough trading at the sugar arm and bakery operations coupled with soaring energy costs would eat into second-half profits.

AB Foods predicted the downturn in April and today said the reduction in earnings 'will be in line with our expectations' as EU sugar quota cuts started to take hold.

However, the business hailed 'very strong sales' at its budget clothing chain Primark as it reported an increase in second half profits growth.

The company said like-for-like sales in the second half of the year had matched the 'exceptionally strong' growth of 12% for the same period last year, while it expects growth for the full year to be 3%.

The company's British Sugar operation - known in the shops as Silver Spoon - said earnings are dropping as cuts in prices guaranteed by the European Union coincide with a raft of cost increases.

Amid mounting criticism, the European Commission agreed to slash the price of sugar and beet by 36% and 39% respectively over a four-year period from July.

The commission hopes that the reforms will consign sugar mountains to history and allow producers in the world's poorest countries to prosper.

However, the move has left AB Foods trying to cope with imbalances in supply and demand in the sugar market which have prompted price pressures.

But, in a trading statement today, the firm stressed its estimates of the effect on operating profits in the next financial year remained unchanged.

At its Primark arm, the company said today its programme for refitting and opening a batch of the former Littlewoods stores had continued on schedule.

It said the year had seen a 40% increase in retail selling space with 143 stores operating, including the group's first shop in Spain.

The company has made £1.5bn worth of investments in recent months, including the acquisition of stores from the Littlewoods and Allders chains.

This summer Primark scored a success with a cotton polka dot dress, with almost 100,000 racing across the counter at £10 each.

AB Foods also said its Twinings, Ovaltine and Ryvita businesses had all achieved strong profits growth during the year.