Associated British Foods (ABF) has slashed profit guidance for its struggling sugar business and reported declining sales at fast-fashion chain Primark, as the FTSE 100 conglomerate battles challenging conditions on multiple fronts in advance of a planned demerger next year. Primark trades as Penneys in Ireland.
The group said the “duration and severity of the Middle East conflict” had left it expecting to pay higher gas prices in its sugar business next year, while sugar prices in Europe remain at low levels.
High gas prices following the closure of the Strait of Hormuz earlier this year pushed up refining costs for ABF. Chief executive George Weston said the company was expecting to pay 75 pence (€0.90) per therm for gas next year but now expects to pay £1.05 (€1.25).
As a result, ABF now expects its sugar division to report an operating loss of up to £60 million in 2026, compared to prior expectations for a £25 million loss. ABF’s shares fell by about 2 per cent on Wednesday morning.
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The British grocery and retail group is preparing to separate Primark from its food business in a bid to remove a perceived conglomerate discount afflicting ABF, which sells everything from tea bags to animal feed.
[ Primark’s uneven growth underscores case for ABF splitOpens in new window ]
However, Primark is contending with subdued consumer demand, particularly in continental Europe. Sales at the discount chain fell 2.2 per cent on a like-for-like basis in the third quarter, slightly better than analysts expected, with sales in Europe dropping 3.6 per cent.
The company reiterated its expectation that Primark will report a full-year operating profit margin of approximately 10 per cent.
Sugar sales fell 4 per cent in the third quarter to £451 million, driven mainly by falling demand in Europe, where increasingly health-conscious consumers are cutting back. Sales were also hit by rain-related production delays at its new factory in Tanzania.
Weston said he expected an improvement in the business as European sugar beet producers have been reducing their output in a bid to rebalance supply and demand.
Barclays said the sugar downgrades were “tough to digest”. “Unfortunately, this distracts from a decent Primark result,” said analyst Matthew Clements.
Group sales were flat at £5.3 billion in the quarter. ABF reiterated its expectation that full-year operating profit and earnings per share would decline at a group level.
ABF announced in April that it would separate Primark by the end of 2027 in what is anticipated to be one of the largest-ever FTSE 100 demergers.
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