Profits at the grocery division of Associated British Foods will be lower than expected as losses continued to mount at Kingsmill producer Allied Bakeries on the back of ongoing declining sales. The parent group is hoping the planned acquisition of Hovis will create a financially sustainable bread business.
ABF CEO George Weston said in a trading update this morning that he was “pleased” with how the group performed in the second half of its financial year to 13 September against a “challenging environment”.
Grocery sales in the half are expected to be in line with the previous year, reflecting “good” growth in the international brands such as Twinings and Ovaltine but offset by lower sales at Allied Bakeries and US oils.
Allied also made an operating loss in “a challenging” market. The bakery announced a combination with Hovis last month, with the deal now subject to regulatory approval.
ABF said this morning that by combining the production and distribution activities of the two businesses, it expected to drive significant cost synergies and enable innovation to create a sustainably profitable business.
Overall, ABF downgraded its adjusted operating profit expectations for grocery in the second half to be “slightly below” previous forecasts, which the group said was “mostly due to one-off restructuring costs”.
ABF also continued to expect adjusted operating losses for its sugar business, including the Vivergo bioethanol plant, to be close to £40m. The group took the decision to close the Vivergo bioethanol plant last month following protracted negotiations with the UK government. ABF said the move, along with restructuring action it is taking in Spain, would result in costs and impairments of about £200m, with £50m in cash charges to be incurred in the current financial year.
Sales and profitability in the sugar businesses in the UK and Spain declined significantly in the second half as a result of persistent low European sugar prices and a high cost of beet.
Elsewhere, ingredients sales were expected to be broadly in line with last year and Primark is expected to register sales growth of 1%. Primark’s like-for-like sales in the half are expected to be about 2% lower than a year ago.
“I’m pleased with how the group has performed in the second half of our financial year in what continues to be a challenging environment, characterised by consumer caution, geopolitical uncertainty and inflation,” Weston said.
“Primark delivered improved trading in the UK and strong sales growth in the US, while trading on the continent was softer in a weaker consumer environment. In our food businesses, overall trading in the second half was in line with our expectations.”
He added: “This has also been a busy period strategically, including the decision to close the Vivergo bioethanol plant, the restructuring of our Spanish sugar business, and an agreement for Allied Bakeries to acquire Hovis to create a financially sustainable UK bakeries business. Against a backdrop of continued volatility in 2026, we will start to see the benefit from our recent actions and continued investment.”
ABF will announce its full-year results on 4 November.
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