Opening Quote: Sugar sweetens Primark’s squeeze; Beige is back for Burberry

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Opposite ends of the high-street clothes rail were perused by investors this morning, as Primark owner Associated British Foods and Burberry, the purveyor of expensive beige gabardine, reported to the market.

ABF was keen to emphasise that at ‘Primani’ there was even more floor space onto which customers could throw inexpensive t-shirts they did not intend to buy. Its half year results emphasised “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”. By which it meant it had opened yet more stores in which staff had to keep bending down to pick up unsold stock, and did not want anyone to focus on its rising costs and shrinking margin.

ABF would only note that “the impact of the US dollar’s strength on Primark’s input costs have been well flagged and our commitment to price leadership in clothing retail has seen, as forecast, a decline in its operating margin.” By which it meant we’re keeping the prices low, so prepare for a squeeze on profit.

However, thanks to the high street’s most unusual hedging strategy – selling sugar to offset fashion – ABF was able to report a 19 per cent rise in total revenue to £7.3bn in the first half, and pre-tax profit up 92 per cent to £867m. At an operating level, some £51m of the £171m increase in profit was entirely due to the currency effect that had so squeezed Primark.

Chief executive George Weston said:

We achieved a more acceptable rate of return in Sugar and further good progress was made by our Ingredients and Grocery businesses.

But investors should remember finance director John Bason recently pointed out that almost all the group’s profits increase would come in the first half, thanks to stronger sugar performance – and ABF shares have fallen by 23 per cent over the past 12 months because of concerns about currency at Primark, which is still 60 per cent of the business.

Further uptown, at Burberry, the currency effect has been helping sales of macs and, in particular, the handbags and the manbags that your Grandad’s offshore trust fund had to sweat so you could buy.

Burberry reported notched up a 3 per cent rise in like for like sales in its first half, or 19 per cent including the exchange rate boost, thanks to strong sales in the UK and a return to growth in China.

Retail revenues reached £1.3bn in the six months to March 31, but total revenues were down 1 per cent, partly due to a decision to scrap its own perfume and beauty range and enter a new franchised fragrance arrangement with Coty. Think “smell of damp raincoat”.

Among the strongest sellers in period were accessories, where Burberry achieved a double digit rise in leather goods revenues. Chinese sales rose in the “high single digits” but fell in Hong Kong and Korea.

Christopher Bailey, still chief executive until Marco Gobbetti takes over in the summer, said:

The outperformance of fashion and the strong customer response to new products underline our renewed creative momentum.

And while on the subject of getting rid of unwanted smells… pest control and hygiene group Rentokil Initial has reported a 10 per cent increase in revenue as it continues its acquisition spree. Of that double digit rise, 3 per cent was organic growth and 7 per cent from acquisitions.

In the past year, the group has bought up 12 businesses, 10 in pest control, one in hygiene and one in property care, principally in emerging and growth markets. Combined annualised revenues of the businesses acquired totalled £101.7m in the 12 months immediately prior to acquisition.

As a result, Rentokil’s pest control sales grew by 19 per cent, or which 6 per cent was organic, while hygiene revenues rose by 4 per cent, with 3 per cent organic.

Emerging markets performed best, with sales up a quarter, and there was continuing strong performance from Asia, Pacific, Latin America, the UK and Rentokil’s largest market, North America.

And, finally, Henderson Global Investors has reported a rise in asset management despite outflows from its funds in the opening months of this year.

The investment house, which is in the process of merging with US rival Janus Capital, said it suffered a net outflow of £1.4bn from its retail clients, and £400m from institutional clients in the quarter ending in March.

However, stronger investment performance and help from exchange rates helped assets under management to rise by just over £2bn, to £103.1bn.

Andrew Formica, Chief Executive of Henderson, said:

While Retail client outflows continued, we saw an improvement in client sentiment and flows as we moved towards the end of the quarter.

FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.

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