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Profits sweet for Associated British Foods

12-Nov-2001

Associated British Foods Plc on Tuesday reported annual profits at the top of market forecasts and said it aimed to grow future earnings in high-single figure digits in percentage terms.



The company, whose brands include Silver Spoon sugar and Twining tea and which runs the Primark discount clothes retailing chain, reported a five percent growth in pre-tax profits to 393 million pounds ($573.5 million) before exceptional items, compared with forecasts of 386-392 million pounds.



The tightly held group, which earns the bulk of its profits from British Sugar, Primark and the interest on its one billion pound cash pile, said four of its five core business areas showed annual double-digit operating profit growth.



"We are confident we can go forward from here and meet our two targets of sustained growth and strong cash flow, "said Chief Executive Peter Jackson in an interview.



He added high-single figure earnings growth was a realistic goal, after earnings rose seven per cent to 35.4 pence a share.



Jackson has reshaped the group's food business, selling its underperforming UK ice cream business and its Wagon Wheels Burton's Biscuits division, and looks to use the cash pile to expand into strong growth areas such as food ingredients.



The shares, of which the Weston family hold around 60 per cent and which have been one the best performer in the FTSE 100 this year, dipped 4-1/2 pence to 482-3/4p by 0920 GMT after disappointment there was no news on further reshaping the group and using its cash pile.



The shares have outperformed the FTSE All Share index by over 40 percent over the last year and European food and drink stocks by 30 percent, but analysts say the shares trade at a discount to international food groups such as Unilever, Nestle and Danone, due to the lack of strong growth and brands in its food side.



Some analysts and fund managers said the group's strong defensive qualities were well known in times of a slowdown, but some investors were switching into cyclical stocks ahead of an anticipated recovery.



"These figures are a bit ahead of our expectations, and show some strong results while the group could be helped by the first sustained flour and bread price increase for 15 years," said analyst David Lang at Investec Henderson Crosthwaite.



Jackson said the price increase, pushed through in September, would help its milling and baking unit which makes Kingsmill bread, and assist an industry recover after seeing severe pressure for years from overcapacity and weak pricing.



He said four of the group's businesses -- primary food and agriculture, ingredients, grocery and retail show good growth with the one problem area being Australian George Weston Foods which suffered from a weak Australian dollar and the results of consolidation in the meat industry.



Primark showed profits 18 per cent ahead at 60 million pounds after it opened 15 stores in the year to reach 110 outlets with like-for-like sales running at six percent ahead.



Jackson said the retailer was doing well, and was firmly part of the largely food group with no thoughts of demerger.



The company reported flat sales at 4.43 billion pounds and declared a second interim dividend of 7.55 pence a share after 7.0p, making a year payout up five percent at 11.80p. ($1=.6853 Pound)

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