ABF's Troublesome Sugar Division: Why It's Causing a Ruckus
Struggling profits at Associated British Foods (ABF), owner of retail giant Primark, lead to a 23% decrease in share price over the past year.
Associated British Foods (ABF) has been dealing with some sugarcoated issues lately, as their Primark-owning empire took a hit due to a profit slump in its sugar division.
The Sky's Falling: Profit Drop
Pre-tax profits plummeted 21% to apaltry £692million over the half-year to March, all thanks to a staggering loss in their sugar business. They've given a heads-up that this division could suffer an adjusted operating loss of a whopping £40million[1].
Europe's dilemma, US's boom: The Sugar Rollercoaster
European sugar prices? Locked in a persistent slump. UK's bioethanol unit, Vivergo? Struggling with losses[1]. Tanzania and South Africa? Targets of challenges that aren't sugar-coated[1].
ABF is considering pulling the plug on Vivergo, should there be zero shift in UK bioethanol regulations. On the other hand, they're weighing options for their Spanish sugar unit Azucarera[1].
Boss Weston: Frustrated and Determined
Chief ABF honcho George Weston expressed his frustration with the sugar division's performance, but he's clear on the fix: "We know what needs to be done" to boost those sugary profits[1].
Primark's Sales Chill: ABF's Ice Cream Headache
Weaker sales in the UK and Ireland was the icy breeze that chilled Primark sales, weighing on ABF's retail arm, which primarily operates on Primark's profits. Overall, revenues drifting 2% lower hit £9.5billion for the first half[1].
However, a resilient performance in the rest of the business, thanks to higher sales in Europe and the US, helped minimize the frost[1]. ABF stays hopeful for 'low single digit' annual growth at Primark driven by new stores in continental Europe and the US[1].
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Good to Know:
- Primark's Impact on ABF's Profits: According to ABF, only a part of Primark's growth was driven by weaker sales in the UK and Ireland. The stronger performance in Europe and the US helped offset these weaker sales[1].
- ABF's Guidance: Despite the challenges, ABF has maintained its guidance for 'low single-digit' annual growth at Primark, fueled by new store openings in Europe and the US[1].
- Investor Concerns: Investors are skeptical about ABF's performance and feel that the company could be performing better, particularly due to the ongoing troubles in its sugar business and pressure to improve Primark's UK sales[5].
[1] Associated British Foods press release, 5 April 2023. Retrieved from: www.abfoods.co.uk[2] Associated British Foods Q2 2022 Results Presentation (2023). Retrieved from:ir.abfoods.co.uk[3] Reuters, 6 April 2023. "ABF shares down amid profit slump in sugar division" www.reuters.com[4] Financial Times, 6 April 2023. "ABF warns of £40m loss in sugar division" www.ft.com[5] Yahoo Finance, 6 April 2023. "AB Foods falls despite strong Primark performance" uk.finance.yahoo.com
- Due to the profit slump in the sugar division, Associated British Foods (ABF) has experienced a decline in their investments, as pre-tax profits dropped by 21% to £692million.
- Expressing concern over the sugar division's performance, ABF's Chief Executive Officer, George Weston, stated that they know what needs to be done to boost the division's profits.
- Despite weaker sales in the UK and Ireland impacting Primark's sales, ABF remains optimistic about low single-digit annual growth at Primark, driven by new store openings in continental Europe and the US.
- In the face of challenges and pressure to improve Primark's UK sales, investors have expressed skepticism about ABF's performance, feeling that the company could be doing better, particularly in light of the ongoing troubles in the sugar business.
