Associated British Foods (ABF), which owns the Penneys and Primark brands, said yesterday high costs and tough trading conditions would hit first-half profits at its British Sugar division, but its Primark stores had increased sales by 6 per cent.

"Trading in the current year for British Sugar in the UK and Poland has been difficult, with price pressure on contracts for this calendar year and sharply higher energy costs," ABF said in a statement.

"Operating profit for these businesses will be lower than last year as a result," it added.

Analysts at investment bank UBS estimated a first-half profit decline of around £20 million (€29.36 million) for the European sugar business.

The company's budget Primark clothes shops have continued to trade well, and like-for-like sales are expected to have grown about 6 per cent in the six months to March 4th, despite a warehouse fire in November which destroyed half its stock.

"A commendable performance given the disruption caused by the warehouse fire," said analysts at Panmure. "We estimate that margins will have increased again, more than compensating for some self-insurance costs of the fire."

The company said 41 of the 120 Littlewoods stores it bought last July had been transferred to Primark management would be opened progressively from late spring until early 2007.

"Our year-end is September, and probably 10 will be open by then, and then by far the majority will be open by Christmas," finance director John Bason told Reuters. - (Reuters)