Associated British Foods’ first half revenue remained flat at £9.5bn, ignoring exchange rate impacts. Primark sales were up 1%, with overseas growth offsetting a soft performance in the UK & Ireland.
Underlying operating profit fell 10% to £835mn, below market expectations. The disappointment was largely driven by a sharp drop in profitability within the sugar division, hit by persistently low prices across Europe.
Free cash flow fell from £468mn to £27mn. Net debt, including lease liabilities, rose from £2.5bn to £2.8bn.
Primark’s full-year guidance had been reiterated, with revenue expected to grow at a low single-digit rate. The sugar division is now expected to post an underlying operating loss of up to £40mn (consensus: £58mn profit).
An interim dividend of 20.7p per share was announced, in line with last year. £422mn of share buybacks have been completed year-to-date.
The shares fell 8.5% in early trading.
Our view
Associated British Foods’ (ABF) first-half results disappointed markets. Primark delivered a weak performance on home soil, and a much worse-than-expected outlook for sugar profitability saw the shares fall on the day.
Given Primark's maturity in the UK, growth here is proving hard to come by. But overseas expansion is a big part of the game plan and is helping to offset the decline in the UK. At a time when many other large physical retailers are closing their doors, Primark expects new stores to contribute around 4-5% in annual sales growth for the foreseeable future.
Last year’s increased sales, combined with a fall in material and freight costs, were a huge tailwind for Primark's profitability, which improved by more than 50%. That’s making for some tough comparable figures. With 2025 getting off to a shaky start, and retail being such a fickle sector, Primark needs to retain its laser-like focus on its ranges and make sure it keeps offering what its conscious customers want.
But Primark's not the only show in town. ABF is home to an eclectic mix of food and commodity businesses. This diversification helps to spread risk and ensures that the company isn't overly reliant on any one particular product or division. But bear in mind, sugar and other commodity prices are cyclical and will fluctuate over time.
That’s exactly what we’re seeing play out. A sharp fall in European sugar prices has seen profitability fall by more than £140mn in the first half as the division turned loss-making. The regulatory picture for its bioethanol plant, Vivergo, is making operations unviable too. Unless current discussions with the UK government are fruitful, ABF could be forced to close the plant, at least temporarily.
Geopolitical tensions remain fragile, and any escalation could have knock-on effects for global supply chains. Current guidance has factored in the impact of tariffs, but the picture can change quickly, and we can’t rule out further disappointments.
The balance sheet remains in good shape and should help the group weather the storm. This also means there's room to return excess cash to shareholders through share buybacks. But as always, shareholder returns are never guaranteed.
Primark has growth opportunities abroad, but in the near term, this could be overshadowed by weakness on home soil. And the outlook for sugar could get worse before it gets better. ABF’s current valuation is well below the long-term average, which could mark an attractive entry point for potential long-term investors willing to accept ups and downs along the way.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Associated British Foods’ management of ESG risk is average.
ABF has a comprehensive environmental policy and global supplier code of conduct. Although priorities appear to be set at a group level, each business division has its own approach, resulting in certain businesses reporting more comprehensive sustainability efforts than others.
Associated British Foods key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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