ABF is truly in the sweet spot at the moment. Cut-price fashions suit the spirit of austerity. And the falling price of cotton has made it much easier to flesh out Primark’s margins, which were under pressure last year. In the past six months,10 new Primark outlets have opened their doors and ABF plans to open a further six in the second half. Operating profit at the division has risen 2% to £154m.
Over in the food manufacturing business – ABF owns Silver Spoon and Ovaltine, among other brands – the bumper crop of sugar beet has been a real boon for the group, especially given the hefty restructuring costs sustained by its grocery business. In the last six months alone, operating profit for the division rose 59% to £172m.
But sugar could yet give ABF a bit of a toothache. Sugar quotas that have historically supported prices will be scrapped by the European Commission in September 2015. Unsurprisingly, ABF chairman George Weston is not best pleased: ‘AB Sugar is engaged with policymakers in the EU to explore alternative options for sugar reform,’ he says.
And that’s not the only thing sticking in Weston’s craw. The eurozone, which accounts for 20% of sales, is still a threat to further growth. ‘Consumer demand can be expected to remain under pressure,’ says Weston. But the group has already taken measures to limit its exposure to the bloc’s woes: ‘The diversity and geographic spread of the group’s activities, together with the strength of the group balance sheet and the reduced reliance on bank finance, afford some protection from the worst effects of the eurozone problems,’ he adds.
If that sounds smug, it’s not without good reason. Other retailers, without the foresight or opportunity to protect themselves from the eurozone crisis, are in deep trouble. Carpetright, the carpets and beds chain, only today announced its seventh profit warning in a row after like-for-like sales fell 4.4% in Europe. Full-year profit forecasts have now been revised down to between £3m and £4m, down from £6m.
Shares in ABF were up 2.14% to £12.41 in early trading, while Carpetright’s were down 4.1% to £5.82. So ABF is on a sugar high but the bed market is flat as a pancake…