Associated British Foods experienced a notable downturn in its financial performance during the first half of the fiscal year, reporting a 10% decrease in pre-tax profit.
This decline was primarily attributed to significant losses within the company’s sugar division, which faced challenging market conditions and potentially lower selling prices or increased production costs, according to a Reuters report.
Associated British Foods (ABF) is a British conglomerate with diverse operations spanning food, agriculture, ingredients, and retail. Primark is ABF’s retail arm.
Profit decline hits sentiments
The negative financial results had an immediate impact on investor sentiment, leading to a sharp 8% drop in ABF’s share price in the initial hours of trading on Tuesday, indicating concerns among shareholders regarding the company’s profitability and future outlook.
This development highlights the sensitivity of the market to earnings reports and the potential for specific divisions within a diversified conglomerate to significantly influence overall financial performance and market valuation.
Despite acknowledging weaker sales within its UK and Ireland markets, the retail conglomerate maintained its projected “low single digit” annual growth for its Primark clothing division.
Expansion aims to offset weakness
This optimistic outlook is primarily fueled by the strategic expansion of ABF’s physical presence through the opening of new stores in continental Europe and the United States.
The company anticipates that the revenue generated from these newly established locations will be substantial enough to compensate for the anticipated downturn in sales experienced in its more mature domestic markets.
This strategic focus on international expansion underscores the group’s confidence in the Primark brand’s appeal beyond its traditional strongholds and its commitment to achieving overall growth despite regional challenges.
Primark experienced a 1% increase in sales, reaching 4.5 billion pounds.
This news follows the recent resignation of its chief executive, Paul Marchant, who departed last month due to allegations of inappropriate behaviour.
The company said:
While we continue to assume our trading in the UK remains challenging in H2 2025, there have been some early signs of improvement in recent weeks.
AB Foods anticipates a full-year adjusted operating loss of up to £40 million ($54 million) in its sugar division.
This projection accounts for sustained low sugar prices in Europe, losses within its UK bioethanol operation, Vivergo, and difficulties encountered in Tanzania and South Africa.
The company stated that its review of the Spanish sugar business, Azucarera, was nearing completion.
It also indicated it might mothball or close the Vivergo plant, contingent on changes to the UK’s bioethanol regulations.
The company reiterated its previously stated outlook for its grocery, ingredients, and agriculture divisions.
Outlook
In the first half of its fiscal year, ending on March 1st, the company reported an adjusted operating profit of £835 million.
This figure represents the management’s preferred metric for assessing the underlying profitability of the business.
Notably, this profit was achieved on a flat revenue of £9.5 billion when measured on a constant currency basis.
This indicates that despite no growth in overall revenue when exchange rate fluctuations are factored out, the company managed to maintain a substantial level of operating profitability during the reported six-month period.
At the time of writing, shares in AB Foods was down 7%, wiping out most of the 10% gain recorded so far this year.
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