ABF warns of rising commodity costs

ASSOCIATED British Foods said further growth this year may be limited by the effects of rising commodity costs as it reported a 10 per cent rise in first-quarter sales led by its Primark discount fashion retailer.

The group, which markets Silver Spoon sugar, Twinings tea and Ovaltine drinks, said its 214 Primark store chain had traded well despite heavy snowfalls across northern Europe in the runup to Christmas.

First-quarter results for the 16 weeks to Jan. 8 saw Primark sales up 12 per cent due to new store openings and "good" like-for-like sales growth, while sugar sales were up seven per cent helped by world sugar prices hovering around 30-year highs,

The group reiterated its cautious outlook that it expects to see unspecified growth in the current year but has warned Primark margins will be hit by high cotton prices as it plans not to pass the extra costs onto its customers.

It warned that the continued rise of some commodity costs such as wheat and cotton will need to be managed over the coming months, and said the UK beet sugar production had been affected by the heavy snowfall.

"Although further growth is expect for the coming year, this will be moderated by the eventual impact of the adverse weather conditions on UK sugar production," the group said in its trading update.

Analysts said snow in the run-up to Christmas caused a drag for general retailers of around two to three per cent on like-for-like sales, but Primark appeared to have done better due to its younger customer base and its High Street shops.