- Lower sugar prices impact profitability
- Primark hit by poor UK weather
- Share buyback extended
Associated British Foods (ABF) dropped to the bottom of the FTSE with the shares falling 4% after the grocery-to-retail conglomerate warned on sugar division profitability and reported a second half decline in like-for-like sales at Primark.
The shares have slipped by just over a tenth since the middle of the year, paring year-to-date gains to 1.6% compared with a 7% advance in the blue-chip FTSE 100 index.
A sharp fall in European sugar prices in the fourth quarter is expected to impact the division’s profitability in the 2025 financial year before recovering in the following year. Profitability in 2024 remains ahead of the prior year.
Meanwhile the group’s fashion retail arm Primark saw same-store sales decline around 0.5% in the second half, impacted by poor summer weather in the UK which resulted in lower footfall.
WHAT DID THE COMPANY SAY?
Despite these setbacks, chief executive George Weston struck an optimistic tone: ‘The group has continued to perform well in the second half, delivering good topline growth, a significant improvement in profitability and excellent cash generation.
‘While the British weather was not in Primark’s favour this summer, robust growth in other markets and new store openings have driven good sales overall.
‘Notwithstanding the short‐term volatility in Sugar, we are optimistic about the outlook for the rest of the group, which is well positioned for further strategic progress supported by continued reinvestment for the longer term.’
Having recently completed its second £500 million share buyback programme, the company intends to capitalise on strong cash generation this year by extending the programme by a further £100 million.
MIXED OUTLOOK
Looking ahead, Associated British Foods expects Primark to deliver ‘good’ sales growth in 2025 as the store roll-out continues and to achieve adjusted an operating margin roughly in line with the 11.5% level generated in 2024.
Grocery is anticipated to see continued sales momentum and profit normalisation in US-focused brands while the ingredients division is expected to notch-up further growth.
The sugar division is expected to be ‘significantly’ impacted with overall operating profit in the range of £50 million to £75 million before bouncing back in 2026 after an anticipated rebalancing of supply and demand.
For reference the division delivered an adjusted operating profit of £169 million in 2023.
