Leap in profits for Associated British Foods in wake of sterling slump
Primark owner Associated British Foods (ABF) has reported a strong rise in half-year profits, boosted in part by the Brexit-hit pound.
The company saw adjusted operating profits rise 36% to £652 million in the 24 weeks to March 4, while total revenue rose 19% to £7.3 billion.
Taking into account the sale of its US herbs and spices and Chinese sugar operations, pre-tax profits rocketed 92% to £867 million.
ABF, which also generates revenue in Asia, Europe and the Americas, said it benefited to the tune of £51 million from sterling's collapse following last year's referendum vote.
At Primark, total sales increased 12% at constant currency, driven by more retail space, and 22% ahead at actual exchange rates.
In the UK, the retail chain's sales rose 7% and 2% on a like-for-like basis.
ABF also confirmed Primark's profit margins are taking a hit from the collapse in the value of the pound, which has driven up costs for British businesses.
"The operating profit margin in the first half declined, as forecast, reflecting the strength of the US dollar on input costs.
"The full effect of sterling weakness against the US dollar on Primark's purchases will result in a greater margin decline in the second half because our currency hedges were at more advantageous exchange rates in the first half," ABF said.
However, it added Primark "remains committed to price leadership in clothing retail".
Chief executive George Weston said: "The underlying growth of the group at constant currency was strong in the first half.
"Primark delivered a substantial increase in selling space which, together with its strong consumer offering, contributed to a further increase in our share of the total clothing market.
"Furthermore, we achieved a more acceptable rate of return in sugar and further good progress was made by our ingredients and grocery businesses."
The firm, which also owns Twinings tea, Kingsmill bread and Silver Spoon, also benefited from a rising sugar price and "significant savings" at its sugar arm.
Shares were up 1.32% to 2,754p in morning trading.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "The strength of the dollar has eaten into margins at Primark, as a result of the rising cost of purchasing goods, hitting performance at the biggest contributor to ABF's profits.
"Fortunately, with more than two thirds of revenues generated overseas, weak sterling has acted as a boost to performance at much of the rest of the group, which ranges from animal feed to Twinings tea.
"Particularly significant is the recovery in the sugar price, which, when combined with the currency tailwind, added more than £100 million to profits at AB Sugar."