Primark Stars for Associated British Foods


LONDON -- Shares in Associated British Foods put on 5.2%, or 81 pence, in early trade this morning to reach 1,637 pence, following the release of its third-quarter interim management statement. I recently put the company onto my watchlist, so let's delve into the numbers:

Covering the 16 weeks to Jan. 5, 2013, Associated British Foods announced that group revenue was 10% up on the same period last year. The company has five different business segments, with the growth breakdown as follows: sugar (+12%), agriculture (+3%), grocery (0%), ingredients (0%) and retail (+25%).

So while there was no drop-off in any of the five areas, trading for agriculture, grocery, and ingredients remain in line with expectations, there were positive growth signs in sugar (albeit with a warning -- more on that later), but retail was the real star of the results with Primark's massive 25% increase in revenues.

Management highlighted a "substantial increase in retail selling space and superior sales densities in the larger new stores" and good Christmas trading, although it ought to be noted that the 25% figure this year is enhanced by the previous period's unseasonably warm autumn (reducing the demand for new, warmer clothes). Nonetheless, Primark is undoubtedly the jewel in ABF's crown, and 14 new stores were opened in Q3 2012: six in Spain, four in the U.K., one each in Germany and the Netherlands, and the company's first two stores in Austria. Another notable event in the period was the opening of a second store on London's Oxford Street, with 82,000 square feet of selling space. Just minutes from my office, I've been able to see firsthand the impressive footfall in the new build. Management also claimed "operating profit margin was higher than in the same period last year, reflecting not only the benefit, as expected, of lower cotton prices since last half year, but also better trading."

A notable mention goes to ABF's sugar business (AB Sugar) after that 12% increase in revenues. In part, this is due to abnormally low levels of sales last year, as well as marginally higher sugar prices. However, management warned that "poor growing conditions during 2012 resulted in a lower beet yield and sugar content," which means the U.K. campaign will have lower factory throughputs to allow for a slower filtration process. Sugar production for the current year is estimated at 1.13 million tonnes compared with last year's 1.32 million tonnes, thus profit for the current year is expected to be lower than last year as a consequence of the lower production, higher beet cost and a weaker euro.

Overall, the operating cash flow for in the period was much better than last year, primarily driven by "higher profits, a lower working capital outflow and a further reduction in the overall level of capital expenditure". Net debt at Jan. 5, 2013, was 0.9 billion pounds, much lower than last financial year-end's figure of 1.4 billion pounds, with credit due to Primark's outstanding trading as well as the later start to the European sugar campaigns.

The outlook remains healthy for ABF, too, with year-to-date trading ahead of expectations -- another hat tip to Primark's results, which is forecast to more than offset the expected lower full-year results from AB Sugar.

ABF was one of the FTSE 100's best performers last year, and has begun 2013 very strongly with these results. If you're looking for other investments in the Footsie, I recommend the special FREE report from The Motley Fool, updated for 2013, "8 Shares Held by Britain's Super-Investor." It contains the names of the blue chip companies favoured by Neil Woodford, whose track record speaks for itself, beating the U.K.'s premier index by 200%-plus during the 15 years to October 2012 by identifying large-cap winners on a regular basis. To have your copy delivered to your inbox immediately and completely free of charge, simply click here now.


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Sam Robson does not own shares in Associated British Foods. The Motley Fool recommends Associated British Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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