Associated British Foods (ABF) increased its first-half profits by 5 per cent as strong sales from its Primark discount clothes chain and Pataks and Twinings grocery division more than offset weaker sugar performance.

Group underlying pre-tax profits for the 24 weeks to March 1 rose by 5 per cent to £282 million, the top end of City expectations, on revenues up 15 per cent to £3.71 billion.

Martin Adamson, chairman of ABF, gave warning, however, that "the trading environments of many of our businesses are being affected by an unusual degree of economic uncertainty".

The group is continuing to develop planned new Primark stores in all the countries it operates - Britain, Ireland and Spain. Eight new stores are due to open in the second half.

Shares in ABF fell 28p to 862p in early morning trading.

Primark's first-half revenue rose 25 per cent to £899 million, while operating profits moved ahead 22 per cent to £111 million.

Same store sales over the period rose 4 per cent, one of the best performances on the UK high street. Two new stores opened in Spain during the first half bringing the total there to four and where sales performance per square foot of space is already ahead of the average for the UK.

Revenues from ABF's grocery division increased by 17 per cent to £1.44 billion thanks to a recovery in the Allied Bakeries division and strong sales of Twinings-branded tea and Ovaltine drinks.

Operating profits from the overall grocery division rose 38 per cent to £88 million. Profits within that division from its ACH American groceries arm - its brands include Mazola corn oil - were marked down by sharp rises in food costs such as corn and soy. Those costs were only passed on as increased prices to retailers after Christmas.

Revenues from the sugar division fell £12 mllion to £567 million but divsional operating profits fell more sharply, down to £58 million from £87 million a year ago. The division was impacted by the restructuring levy and quota cut arising from the long forewarned reform of the European Union sugar regime.

The reforms will continue to have a negative effect on the company's sugar profit in the second half, it said.

The EU has been cutting sugar quotas since November 2005 in an attempt to cut European sugar prices by 36 per cent in four years. The trading bloc was forced to look again at its sugar regime last year after its original proposals failed to encourage enough companies to surrender their quotas.

AB Foods is to surrender 191,000 tonnes of U.K. and Polish sugar quota from October 2008.

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