Associated British Foods (ABF), a FTSE 100 constituent and global food and retail giant, is facing a perfect storm that threatens to dent its profits. A £60m loss for its sugar division in the current financial year is projected, courtesy of the escalating Middle East conflict, which has sent gas prices soaring by up to 40% in a single day.
The impact on ABF's sugar business is stark: European gas prices have surged due to the conflict between the US and Iran, with Iranian attacks disrupting the world's largest liquefied natural gas export plant in Qatar. This has led to increased gas price expectations for next year, which will hit ABF's European profit outlook. The company, one of the world's largest sugar producers with 21 plants across nine countries, highlighted the UK and Europe as key contributors to its sugar revenue, accounting for around 50% of total sales through British Sugar and Azucarera.
However, there is a glimmer of hope elsewhere in the business. ABF's retail arm, Primark, reported a 3% increase in sales during the third quarter, largely driven by new store openings. Like-for-like sales, which compare performance across the same number of stores, declined by 2.2%, with Continental Europe performing particularly poorly.
The company has confirmed plans to spin off Primark, a move expected to result in both businesses being separately listed on the FTSE 100 index. This will allow investors to focus on each business individually and could lead to improved performance from both units. Mark Crouch, a market analyst at eToro, noted that much of Primark's momentum has been overshadowed by the challenges facing the sugar sector.
ABF has indicated that it does not anticipate an improvement in 2027, with a further deterioration expected in its sugar segment. The company plans to implement further action to lower its cost base going forward, particularly in Europe. This move will be closely watched by investors as they assess the impact of the Middle East conflict on ABF's operations.