AB Foods warns of more sugar losses as Iran war lifts gas costs

By James Davey

LONDON, July 1 (Reuters) - Primark owner Associated British Foods warned on Wednesday that its sugar business would be loss-making for at least two more years, as higher gas prices linked to the conflict in the Middle East added to pressure on the struggling division.

The group, which confirmed in April it would spin off the Primark fashion business from its food businesses, said the duration and severity of the Iran war had increased gas price expectations, which have hit its European profit outlook for the sugar division.

Third-quarter revenue in sugar fell 4% on a constant currency basis, reflecting lower average selling prices in Europe, volume declines in Tanzania and the impact of higher imports in South Africa.

Despite its sugar issues, AB Foods said it remained on track for the Primark demerger to become effective before the end of 2027.

Primark's revenue increased 3%, with like-for-like sales down 2.2%, reflecting a challenging retail environment in most markets, the group said. Primark contributes over half of AB Foods' profit.

"A sustained recovery in Primark’s LfL sales remains the key catalyst for the shares, but we believe the turnaround could take longer than the market hopes," analysts at Panmure Liberum said in a note.

FULL-YEAR LOSS FOR SUGAR

The group now expects an adjusted operating loss for sugar of £25 million to £60 million ($33 million to $79 million) in its 2025/26 year and a further deterioration in 2026/27. 

AB Foods had expected a loss from the division for the current financial year but had not quantified it. It made a loss of £2 million in 2024/25.

Shares in the group fell 3.7%, extending 2026 losses to 10%.

AB Foods said the performance of its sugar business was a priority area for management and it expected to take further action to lower its cost base, particularly in Europe.

Aside from sugar, the group's full-year outlook was unchanged, with adjusted operating profit and adjusted EPS expected to be below the prior year.

Overall group revenue in the third quarter was flat.

Sales in the group's grocery business, which includes brands such as Ovaltine, Ryvita and Twinings, rose 1%, held back by lower sales of U.S. oils due to reduced expenditure by Hispanic consumers.

Prior to the update, analysts were on average forecasting a year to September 2026 group adjusted operating profit of £1.55 billion, according to LSEG data, down from the £1.73 billion it made in 2024/25.

($1 = 0.7555 pounds)    

(Reporting by James Davey; Editing by Sarah Young, Elaine Hardcastle and Emelia Sithole-Matarise)