ii view: sugar leaves bitter taste at Primark owner AB Foods

First-half results to 1 March

• Currency adjusted revenue unchanged at £9.5 billion
• Adjusted operating profit down 12% to £835 million
• Interim dividend unchanged at 20.7p per share
• Net debt up 11% to £2.77 billion

Chief executive George Weston said: 

"These results reflect a robust performance in four of our five divisions. I am frustrated with the results in our Sugar business, but we are clear on what needs to be done by way of operational and regulatory solutions to improve financial performance. 

“Looking ahead, in an operating environment with significant uncertainties, the Group remains well positioned and our strong balance sheet enables continued investment to deliver long-term sustainable growth."

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ii round-up:

Primark owner Associated British Foods (LSE:ABF) today detailed interim profit below City hopes, hit by challenges at its sugar business which is now expected to make a full-year loss. 

Lower European sugar prices and a loss at its UK bioethanol business, Vivergo, helped drop group-wide adjusted operating profit by 12% compared with a year ago to £835 million. Analysts had forecast £858 million. Ongoing low sugar prices in Europe and the impact of US trade tariffs are now expected to cause an annual loss of £40 million for the Sugar business versus previous estimates of profit up to £75 million.

Shares in the FTSE 100 company fell 7% in UK trading having come into these latest results up by a similar amount year-to-date. That’s similar to food maker Premier Foods (LSE:PFD) but way behind a 25% gain for mid-market clothing and homewares retailer Next (LSE:NXT). The FTSE 100 index is up by almost 2% in 2025. 

AB Foods operates across the five divisions of sugar, retail, grocery, agriculture and ingredients. Food related brands include Silver Spoon, Ryvita, Kingsmill and Allison’s bread.

The Retail division, which is Primark, saw half-year sales grow 1% to £4.5 billion, with an improvement in the profit margin to 12.1% from 11.3% a year ago. That fed through to an 8% increase in adjusted operating profit year-over-year to £540 million. Growth in Europe and the US countered tough UK and Irish trading. 

A 1% gain in adjusted operating profit to £227 million at the Grocery division came with lower sales in US oils and for Allied Bakeries, countering good growth for Twinings, Ovaltine, Pakak and Blue Dragon.

Profits at the Ingredients business rose 8% to £120 million, driven by demand for yeast and bakery items, while Agricultural profits fell 8% to £12 million, hindered by lower animal feed demand and a hit from one-off costs.

An interim dividend of 20.7p per share, payable to eligible shareholders on 4 July, is unchanged from last year, with of £232 million of a £591 million share buyback programme expected to be completed over the second half.  

A full-year trading update is likely to be announced early to mid-September. 

ii view:

Started in 1935, AB Foods today employs more than 130,000 people across 55 different countries. Primark generated its biggest chuck of revenues during this latest period at 47%. That was followed by Grocery at 22%, Sugar and Ingredients each at around 11%, and Agriculture the balance of 9%. 

Primark trades from 459 stores across 17 national markets. The European sugar businesses in the UK and Spain accounted for just over 50% of total sugar sales during the period. The African business accounted for approximately 40% of overall sugar sales, with the UK bioethanol or energy business, Vivergo, at approximately 5% of total divisional sales.

For investors, unseasonal weather, supply ups and downs, and government regulations regarding biomass fuel bioethanol can and have impacted the sugar business. Chinese online players such as Shein and Temu now compete with Primark. The retailer’s own online offering is still far behind that of Next, while the impact of clothes generally on the environment, given the amount of water used to produce garments, warrants consideration. 

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On the upside, costs for the Spanish sugar business Azucarera are being reviewed, while talks with the UK government regarding bioethanol regulations are being had. A diversity of operations regularly sees difficulties for one area countered by positives for another. Previously increased Primark product prices have aided the retailer’s profit margin, while an forecast dividend yield of around 3%is better than both Next and M&S.

For now, and while challenges remain, this generally well managed FTSE 100 company looks worthy of consideration for many already diversified investor portfolios. 

Positives: 

• Diversified business type and geographical footprint
• Expanding Primark store numbers

Negatives:

• Uncertain economic outlook
• Factors outside of its control like food commodity prices and currency moves 

The average rating of stock market analysts:

Hold