Profits not so sweet as sugar business continues to struggle

The British Sugar beet sugar factory next the the River Yare at Cantley.Picture: James Bass

The British Sugar beet sugar factory next the the River Yare at Cantley.Picture: James Bass - Credit: Eastern Daily Press © 2014

Primark owner Associated British Foods saw annual profits come under pressure as woes in its sugar business and a currency hit offset another strong performance from its high street fashion chain.

The Silver Spoon-to-Twinings group said sales at Primark rose 13% over the year to September 12 as it opened another 20 stores, including its first shop in the United States.

But a third year of 'significant' profit falls in its struggling sugar arm hit overall group results, leaving underlying full-year pre-tax profits 6% down at £1.03 billion. ABF-owned British Sugar has processing plants in Bury St Edmunds, and Wissington and Cantley in Norfolk.

On a statutory basis, profits were 30% lower at £717 million.

AB Foods, which carries out business in a number of currencies, has been hit by plunging world sugar prices, as well as the impact of currency movements and the strong pound.

It offered some hope for a turnaround in the sugar division as it said it expected 'greater stability in profit next year ahead of the EU quota removal in 2017'.

But chairman Charles Sinclair cautioned that currency changes were still likely to act as a drag on the group's earnings over the current financial year, with Primark and British Sugar worst hit.

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He said: 'The substantial moves in exchange rates last year, notably the weakening of the euro and emerging market currencies, will have a significant influence on the results for the coming year.'

'At this early stage we expect the currency pressures to lead to a modest decline in adjusted operating profit and adjusted earnings for the group for the coming year,' he added.

Primark lifted underlying earnings by 5% with currency changes stripped out to £673 million over the year, with the chain saying the UK delivered a positive like-for-like sales performance.

Overall same-store sales eased back to growth of 1% from 4% in the previous year, partly due to last autumn's unseasonably warm weather and a cool spring.

But ongoing expansion has helped boost the division and Primark hopes to add another 1.5 million sq ft of new space over the coming financial year, with new store openings planned for the US, Spain and the UK.

AB Foods also saw a doubling of earnings at its ingredients arm and posted a 5% rise in operating profits in the grocery business.

But these performances were dragged lower by a 76% tumble in sugar profits to £43 million.

Analysts at Liberum said that, despite the ongoing difficulties in the sugar division, the profits fall was not as bad as they had expected.

They added AB Foods had gone through a 'transition year', with performance set to start turning around, in particular helped by the ongoing success at Primark.

'We estimate that Primark can double sales and profits over the next five years,' they said.

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