- First-half profits plunge 21%
- Primark losing market share
- Big miss at Sugar division
Shares in Associated British Foods (ABF) plunged 9% to £20.44 after the global consumer conglomerate posted a slide in first-half profits and downgraded full-year guidance for its Sugar business.
The volatile Sugar arm is now expected to make a loss of up to £40 million this year versus previous expectations of a £50 million to £70 million profit.
And Mr. Market seemed unimpressed by market share erosion at Primark, the jewel in the Associated British Foods crown, where the UK and Ireland performance continues to disappoint.
BITTER TASTE
Results for the half ended 1 March 2025 from the diversified foods-to-fashion giant showed a 21% drop in pre-tax profit to £692 million as the Sugar business delivered a £16 million loss.
The outlook for Sugar has worsened, mainly due to lower European sugar prices and losses in Vivergo, the UK bioethanol business, but also due to challenges in Tanzania due to the overhang of high levels of sugar imports in 2024 and in South Africa due to drought.
Associated British Foods’ chief executive George Weston conceded he was ‘frustrated with the results in our Sugar business,’ yet insisted management was ‘clear on what needs to be done by way of operational and regulatory solutions to improve financial performance’.
PRIMARK UNDERPERFORMS
At Primark, constant-currency sales crept up 1% to £4.5 billion in the half amid growth in Europe and the US while operating profit grew by 8% to £540 million as the cut-price clothing chain’s margins expanded from 11.3% to 12.1%.
Worryingly however, Primark’s UK and Ireland like-for-like sales fell by 6% in a ‘challenging’ market with shoppers remaining cautious, and Kantar data showed Primark’s share of the UK clothing market reduced from 6.9% to 6.7% over the 24 weeks to 2 March.
‘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,’ insisted Associated British Foods, which analysts at Jefferies read as a reiteration of flat margin guidance for the year.
Making life more difficult for Primark in terms of getting things on track is longstanding chief executive Paul Marchant’s recent departure under a cloud; Associated British Foods’ group chief financial officer Eoin Tonge is acting as interim divisional head until Marchant’s permanent successor is hired.
TIME FOR A CARVE-OUT?
Panmure Liberum, which has a ‘Hold’ rating on Associated British Foods, noted various restructuring and strategic reviews have been announced for the struggling Azucarera Spanish sugar, Vivergo bioethanol and Allied Bakeries businesses.
The broker added: ‘Today’s results give further credence to our argument that a sale or carve out of the volatile Sugar business into a separate entity would make the ABF investment case more compelling.’
AJ Bell investment director Russ Mould commented: ‘While the company is sticking with its full-year guidance for the unit, Primark seems to be underperforming its peer group of late. This is worrying given warm temperatures should have increased footfall to Primark’s stores. This hasn’t escaped the attention of investors and will be causing concern for management too.’
Mould added: ‘They will be looking at whether they are getting the basics right - putting the right product in the right places at the right times and right price points to get people through the tills. It badly needs to arrest a loss of market share.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
