PRIMARK OWNER Associated British Foods beat forecasts with just a 2 per cent dip in half-year profits sending its shares higher as growth at its fashion chain and sugar sales offset tough trading elsewhere.

The group, which trades in Ireland under the Penneys brand, said it expects a recovery in second-half operating profits, and so held to its flat annual earnings forecast for its year to September 2009.

AB Foods, 55 per cent owned by the family of chief executive George Weston, jumped 7 per cent to 700 pence as analysts pointed to strong sugar trading and expensive forward contracts in the US vegetable oil market starting to unwind.

“Business is as a whole affected by the economic conditions, but our good performances are offsetting more difficult areas. We are not seeing any green shoots, but we had not expected to see any,” Mr Weston said.

He warned that Primark’s operating margins may fall further in its second half to September 2009 after sliding in the first half to 11.5 per cent from 12.3 per cent due to extra costs from a newly opened UK distribution centre. “Primark’s operating margins fell in the first half mainly due to our new distribution centre, and have potential in the second half to come off further,” he said.

Its 187-strong Primark/Penneys chain, which earns just over a third of group profits, posted profit up 10 per cent to £122 million (€138 million). Like-for-like sales were up 5 per cent as shoppers were attracted to the stores in the economic slowdown. It looks to open a further seven stores in the second half of the year.

AB Foods posted adjusted pretax profit of £275 million for the 24 weeks to February 28th ahead of a consensus forecast of £262 million, while earnings per share were flat at 25.2 pence.

Overall group profit slipped as consumers switched to cheaper food products, hitting its bread and tea businesses.

The group’s half-year dividend rose 2 per cent to 6.9p. – (Reuters)