AB Foods warns profits will fall again

There's little to like about these annual results as the out-of-favour food and fashion firm battles difficult conditions on many fronts. ii's head of markets runs through the numbers.

3rd November 2026 08:27

by Richard Hunter from interactive investor

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The September trading statement may have removed most of the shock factor, but the fact remains that annual numbers from Associated British Foods (LSE:ABF) make for grim reading across the board.

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At the group level, revenue eked out a 1% gain in the 52 weeks ended 12 September to £19.58 billion, but adjusted operating profit (AOP) fell 13% to £1.51 billion and adjusted pre-tax profit by 14% to £1.46 billion. The revised numbers were largely in line with expectations, but the outlook for the coming year offers little solace, with AOP expected to be lower than this year. The previously guided loss from Sugar of £70-170 million is a major driver.

By unit, Grocery AOP fell by 11% to £427 million, and is unlikely to improve this year given the implementation of the Hovis acquisition losses. Accounting for 22% of overall revenues, this is a meaningful miss and was compounded by other declines in Ingredients (11% of revenues) where AOP fell 8% to £238 million and the Sugar business, which showed an adjusted operating loss of £47 million which was within the wide range of £25-60 million previously estimated.

Low European sugar prices, higher gas costs and lower yield expectations for the 2026/27 UK beet crop following the recent spell of prolonged hot and dry weather have all played a part in the worsening outlook.

However, most focus is on Primark, which accounts for half of group revenue and where the demerger of the business is expected to complete in 2027. It is a moot point as to whether Primark’s current performance is a strong advert for a standalone business, particularly in a current environment which is dominated by fragile consumer sentiment, inflationary concerns and higher energy costs.

While sales for the year grew by 2% to £9.8 billion, this was all but driven by new store openings and its franchise model in Dubai and Kuwait. On a like-for-like (LFL) basis, sales fell by 2.6% for the year as a whole, with Europe a continuing drag on the numbers with a LFL sales decline of 4.7% for the year.

Actual sales in the US fared rather better, with growth of 13% for the year, but representing just 6% of group sales, the region remains something of a “jam tomorrow” contributor. However, Primark's overall AOP fell by 12% to £1 billion, while the margin declined to 10.2% from 11.9%, with continued investment in the business through pricing – namely markdowns - and product taking a toll. Inevitably the group remains bullish on prospects, and hopes to repeat some of its previous success from the introduction of “Click & Collect” by rolling out the service to full home delivery.

LFL sales are expected to grow this coming year, with AOP margin remaining fairly stable, but this is far from a ringing endorsement on prospects. Indeed, it is a timely reminder of the difficulties of listing as a pure retailer in investment terms, as evidenced by the poor recent reception to rival Shein’s much-vaunted IPO in Hong Kong, which could yet prove to be a salutary warning.

The rationale for the demerger is clear even though the Primark business is facing a “difficult” clothing market, especially in Europe. The unit, for many years the group’s jewel in the crown, is possibly reaching a size where it requires laser focus to capitalise on its own growth prospects, particularly overseas where the greatest potential is seen.

Quite aside from the challenging backdrop of a cautious consumer, the sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next. It is nonetheless continuing to invest heavily in the business, particularly around capacity and new technology. In the meantime, and for the group as a whole, the weight of a loss-making Sugar business, stuttering Grocery and Agriculture units and the eventual loss of Primark as a standalone stock is currently too much for investors to bear.

The tepid outlook will do little to tempt investors back into the AB Foods story. The profit warning earlier in the year has weighed heavily, with the shares having fallen by 15% over the last 12 months compared to a gain of 11% for the wider FTSE100.

Perhaps equally tellingly, the price has risen by just 4.5% over the last five years, with any planned transformations yet to surface. As such, the stock is currently well out of favour with investors, and since the update has not sprung any positive surprises, the market consensus of the shares as a sell is unfortunately likely to remain in place.

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