AB Foods, Owner of Primark, Forecasts Impact from Declining Sugar Prices

The parent company of Primark, Associated British Foods (ABF), has issued a warning regarding the significant impact that decreasing sugar prices in Europe will have on its upcoming financial year.

Due to an oversupply of sugar across Europe, ABF anticipates operating profits in its sugar division to fall between £50 million and £75 million for the 2025 financial year, a stark contrast to market expectations of approximately £240 million. This forecast is also a decline from the expected £200 million in the current financial year, which concludes on September 14.

George Weston, the chief executive of ABF, described the situation as both “disappointing” and “frustrating.” He noted, however, that such fluctuations are not unexpected in an industry focused on agricultural processing, where supply and demand variations can lead to significant price changes.

Weston expressed optimism that sugar prices will recover by 2026 and indicated that group profits for 2024 are projected to exceed last year’s figures, with sales expected to show a positive trend.

AB Foods owns Primark and a variety of well-known brands

Despite this optimistic outlook, the decline in sugar profits has resulted in a notable drop in shares for ABF, which fell by 212p, or 8.5%, ending the day at £22.89, marking the largest single-day decrease in over two years.

ABF, which operates in 55 countries and employs around 133,000 individuals, includes a diverse portfolio with brands such as Twinings Tea, Kingsmill bread, and Ryvita crackers, alongside Primark. The company expects a 3% growth in its grocery division.

In terms of profit contribution, the sugar sector represents about 20% of Primark’s size. Primark, boasting 440 stores globally, is anticipated to deliver around 4% revenue growth in the latter half of its financial year, even amid a projected 0.5% decrease in like-for-like sales in the UK due to disappointing weather conditions during the summer.

On the continent, excluding the UK, Primark anticipates a sales increase of about 5%, bolstered by stronger performance in Germany, the Netherlands, Spain, France, and Italy. ABF has recently launched eight new stores, including three in Spain, two in Italy, and its first locations in Hungary and Romania.

ABF noted that Primark is making substantial strides in the United States, expecting sales growth of approximately 25% during the second half of the year. The company is on track to open 530 new stores by the end of 2026.

For the full year, ABF projects an adjusted operating profit margin exceeding 11.5%.

Weston emphasized that the company’s cost base has stabilized, indicating that the period of high inflation is coming to an end, as the market transitions towards a more standard environment.

In conjunction with its financial update, ABF announced plans for a £100 million share buyback.

Expansion into the Middle East with First Franchise Agreement

ABF has been actively pursuing international expansion for Primark and has now identified the Middle East as a key area for growth.

The company has entered into a partnership with the Kuwait-based Alshaya Group, a leading multinational retail franchise operator, to assess opportunities for opening stores in the Gulf Cooperation Council (GCC) markets, which includes Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman. This venture marks Primark’s inaugural franchise agreement.

Weston conveyed that there has been consistent interest from franchise operators, indicating strong potential for expansion in these markets. He highlighted that the business is now well-equipped to manage multiple new market entries simultaneously.

Post Comment