Associated British Foods EPS falls 8% in H1 FY25, £104m impairments highlight risk areas

Why Did Associated British Foods Report Mixed Results in H1 2025?

Associated British Foods plc (LSE: ABF) reported a nuanced set of interim results for the 24 weeks ended 1 March 2025, underscoring the duality of its portfolio strength and cyclical vulnerabilities. The £9.5 billion revenue performance, broadly flat in constant currency, highlighted the resilience of ABF’s diversified business structure, but also reflected macroeconomic headwinds, notably within its Sugar and Bioethanol operations.

Adjusted operating profit fell 12% to £835 million, mainly due to a swing to losses in the Sugar segment and a £104 million exceptional charge comprising a £101 million impairment in its Spanish sugar operations and a £3 million write-down at its Vivergo bioethanol plant. Despite this pressure, the Group preserved shareholder value through a steady interim dividend of 20.7p and a continuation of its £591 million share buyback, with £422 million already executed in H1.

From a historical standpoint, this result follows ABF’s FY24 full-year showing of a 5% revenue uplift and margin improvement in Retail and Ingredients. The interim FY25 results reflect a recalibration, particularly in agriculture-linked segments as commodity and regulatory volatility in Europe and Africa take centre stage.

How Did Primark’s Global Push Offset Domestic Weakness?

Primark delivered another strong operational performance, with revenue of £4.47 billion and adjusted operating profit of £540 million, translating to an operating margin of 12.1%, up from 11.2% a year earlier. The retail chain, which has long been ABF’s growth engine, benefited from expansion-led gains in the United States, Europe, and the Gulf, even as UK sales declined 4% on a like-for-like basis.

Internationally, the United States saw 17% growth, Central and Eastern Europe expanded 21%, and Iberia grew 8%. ABF attributed this growth to the successful rollout of new stores—eight in total—strategic leasing, and enhanced digital integration. The expansion into Texas marked a new phase in the US growth strategy, with the company now operating 29 stores in the country and holding 18 additional leases.

Digital advancement also gained momentum with Primark’s Click & Collect reaching 158 UK stores and full rollout expected by June. CRM-driven traffic generation, SEO-optimised marketing, and automated depots in Italy, the UK, and the US helped reduce logistics costs and enhance customer retention.

Despite margin benefits from favourable FX and better supplier pricing, UK weather-led weak footfall, combined with inflationary wage costs, saw market share slip slightly from 6.9% to 6.7% in the domestic apparel segment.

Why Did the Sugar Segment Post a £16 Million Operating Loss?

The sharp reversal in the Sugar segment’s profitability—down from a £125 million profit in H1 FY24 to a £16 million loss—was driven by prolonged price softness in the EU, higher beet input costs, and sustained bioethanol underperformance. These conditions triggered a non-cash impairment of £101 million in Azucarera, ABF’s Spanish sugar unit, where restructuring is underway to improve operational flexibility and cost structure.

Meanwhile, the Vivergo bioethanol plant in the UK posted another operating loss amid regulatory opacity. ABF flagged the possibility of mothballing or ceasing operations entirely unless government policy on biofuels is clarified. This followed a £3 million impairment in H1. Analysts have noted that further delays or policy inaction could result in broader regional supply disruptions and workforce redundancies in the Humber region.

In Africa, drought conditions in South Africa and an import glut in Tanzania affected volumes. However, growth in Eswatini and Malawi partially offset this decline. A new sugar mill in Tanzania is expected to support local supply from H2 2025.

What’s Behind ABF’s Strategic Review of Allied Bakeries?

The UK-centric Allied Bakeries business remained a drag on the Grocery segment, which otherwise held steady at £2.09 billion in sales with £227 million in adjusted operating profit. Allied’s structural issues—including aggressive supermarket pricing and private-label pressure—have led to continued losses.

ABF has initiated a strategic review of Allied Bakeries, with options ranging from cost restructuring to potential divestment. Analysts believe a sell-down could be value-accretive if ABF reallocates resources to higher-margin brands like Twinings and Patak’s, which saw international market share gains. Ovaltine also posted double-digit growth in Asia-Pacific, buoyed by health-conscious demand trends.

Stratas Foods, ABF’s US oils JV, bolstered earnings by acquiring AAK’s New Jersey facility, expanding East Coast manufacturing capacity. This aligns with ABF’s broader strategy to invest in higher-growth, regional brand extensions rather than legacy high-capex units with margin compression.

How Did Ingredients and Agriculture Perform in H1 2025?

The Ingredients segment posted a 2% rise in sales to £1.03 billion and an 8% increase in adjusted operating profit to £120 million. Growth in AB Mauri and AB Biotek was fuelled by demand for yeast-based solutions, enzymes, and nutrition additives. ABF continued to invest in enzyme capacity and inaugurated a new yeast plant in Northern India, reflecting its focus on innovation and APAC expansion.

Agriculture performance was relatively subdued. AB Agri posted a revenue decline to £894 million from £974 million in H1 FY24, due to softer feed volumes and weaker UK grain trading margins. However, operational streamlining and precision agri-technology investment are expected to restore profitability in H2.

What Do ABF’s Cash Flow and Leverage Metrics Indicate?

Free cash flow fell sharply to £27 million from £468 million in H1 FY24, due to profit decline and £268 million in seasonal working capital outflows. Net cash before lease liabilities fell to £201 million (vs. £668 million prior), while total net debt rose to £2.77 billion.

Despite this, ABF maintained a 1.0x leverage ratio and robust liquidity buffer. Capital expenditure stood at £553 million, including £212 million in Retail (largely Primark), £93 million in Ingredients, and £48 million in Grocery. Investments in depot automation, digital retail, and yeast capacity underscore the Group’s pivot toward future-facing infrastructure.

Earnings per share (EPS) declined by 8% to 83.6p. This was cushioned by aggressive buybacks—732 million average shares in H1 FY25 vs. 758 million a year earlier.

What’s the Institutional and Analyst Sentiment Around ABF Stock?

Institutional flows into ABF remain stable, though sell-side sentiment has turned selectively cautious. The Sugar impairment and Vivergo uncertainty cloud the Group’s near-term outlook, especially against the backdrop of higher debt and falling free cash flow.

However, analysts maintain a Hold-to-Moderate Buy consensus, citing strong Primark profitability, international expansion potential, and disciplined capital allocation as long-term positives. The 20.7p dividend and remaining £169 million in H2 buybacks add defensive appeal.

Fund managers focused on ESG have raised concerns about the sustainability profile of ABF’s Sugar and Agri divisions. However, initiatives in bioethanol, decarbonised logistics, and health-forward product ranges could bolster long-term ESG scores.

What’s the Outlook for H2 FY25 and Beyond?

ABF reiterated its full-year guidance for all segments except Sugar, now expected to post a £40 million loss. Retail is forecast to grow in low single digits, with margins tapering slightly in H2 due to higher wage inflation and lower FX tailwinds.

Grocery and Ingredients are expected to deliver consistent returns, while Agriculture will rely on seasonal volume recovery and feed market stabilisation.

Analysts anticipate further geographic expansion for Primark, particularly in the GCC region following a franchise agreement with Alshaya Group. Additionally, restructuring announcements for Azucarera and Allied Bakeries are expected in Q3 2025, potentially reshaping ABF’s margin mix for FY26.