A drop in the sugar business of a parent company has been offset by the success of a discount store.
This is what has happened with Primark – the discount store, and its parent company Associated British Foods.
In the past financial year, ABF has registered growth in revenues and profits and has avoided a slide in business for many British high street retailers in recent months.
ABF reported an increase of 1 per cent in group revenue at £15.6bn, and a 5 per cent increase in pre-tax profit at £1.4m.
According to a statement from the group, Primark “delivered its most significant profit growth in recent years” in the last 12 months ended 15 September. The discounter reported a 6 per cent increase in retail revenue at £7bn and a 15 per cent growth in operating profit at £843m.
There was increase of 1.2 per cent in like-for-like sales and the performance of the store chain has been particularly well in the UK, ABF said.
The continued fall in the sugar business of ABF has been offset by the success in its retail arm. The sugar business has been facing issues because of falling prices of sugar and because of removal of sugar sale quotas by the European Union.
“This was another year of progress for the group. We continued to pursue the opportunities to grow our businesses with a gross investment of £1.2bn,” said George Weston, chief executive of Associated British Foods.
“Strong profit performances were delivered by each of Primark, grocery, agriculture and ingredients. These more than offset the decline in sugar profit which was caused primarily by low prices in the first year after the structural change in the EU sugar regime. Looking ahead, management have clear plans for further investment and for pursuing opportunities for business improvement.”
There would be more investments by the group in Primark, Twinings Ovaltine and its ingredients business, the company said and added that there would be improvement in the profits from its retail grocery. But it said that the profits expected from its sugar business would be “significantly lower”.
The group also announced payment of a dividend of 45p for the year which is 10 per cent more than the dividend that the company paid to shareholders in the last 12 months.
“Associated British Foods has hit the sweet spot for investors again. Not with its sugar business but with fast-fashion brand Primark, whose performance has more than compensated for the fall in profits in its sugar business as a result of the deregulation of the EU sugar market,” said Emma-Lou Montgomery, associate director at Fidelity Personal Investing’s share dealing service.
She added that the profit growth delivered by Primark this time around is the most significant in recent years and it assumes importance because of the lacklustre performance of many other retailers in the sector.
“For many that 10 per cent rise in the annual dividend for shareholders will just be the icing on the cake,” she said.
(Adapted from Independent.co.uk)