Associated British Foods warns of losses

Associated British Foods (ABF), the foods and retail group, has warned that increased price-cutting by its competitors is affecting its Primark fashion stores.

The group, which is 55% owned by the family of Chief Executive George Weston, said its Primark group had increased sales and profits but said margins will be affected by growing rivalry and depreciation.

Furthermore, the group warned of losses at its Kingsmill bakeries following the significant rise of wheat prices over the past 12 months and pointed out that it is set to increase the price of its standard white loaf to over £1 to recover price rises. Currently, a Kingsmill white loaf sells for 96p while its rival Hovis, owned by Premier and privately-owned Warburton charge over £1.

ABF’s 170-strong Primark chain, which accounts for almost 40% of group profit, showed a 1% like-for-like sales rise in the group’s second half from March to September, ahead of forecasts after the wet summer weather hit many clothes retailers.

The company also markets Ovaltine beverages, Twinings tea and Ryvita crispbread and refines Silver Spoon sugar. Its Finance Director, John Bason, said Primark’s sales would have been better but for the poor summer weather while the group had cleared discounted stock last month. He added that Primark is nearing the end of big expansion after the purchase of a number of Littlewoods stores and like-for-like growth was being held back by new stores taking sales from older outlets.

In the breadmaking area, the company said a bread price increase is necessary to recover the recent sharp increase in the cost of flour. Mr Bason did not divulge any information with regard to the timing or the size of any potential price increase.

Finally, the group’s sugar business is strongly ahead of last year, fuelled by a higher-than-expected first-year contribution from Africa’s biggest cane sugar producer, Illovo, in which it bought a 51% stake a year ago and a substantial increase in profits from its Chinese sugar operations.

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