Associated British Foods (ABF): Sugar Losses Set to Double in 2027

Associated British Foods told the market on 10 September 2026 that its Sugar division is heading for an adjusted operating loss of between £70m and £170m in the 2027 financial year, against a 2026 loss now expected towards the top of a £25m-£60m range. The shares closed at 1,835.50p, down 9.1%. In the same statement the company said group adjusted operating profit for FY26 would be broadly in line with expectations and that adjusted earnings per share would come in ahead of them.

That combination — an earnings upgrade and a 9% fall on the same morning — is the whole story. Almost every write-up led on Primark's European like-for-like sales. Primark is not what repriced. The FY27 base is.

What actually happened

The fourth-quarter trading update covered the period to 12 September 2026. Primark's like-for-like sales are expected down around 3% in the quarter, with the weakness concentrated in continental Europe at minus 4.3% while the UK and Ireland managed a marginal plus 0.4%. Total Primark sales still grew about 2% in the quarter, with new stores and the franchise model contributing roughly 5 percentage points of growth against the negative like-for-like. For the full year, Primark like-for-like sales are expected to fall around 2.6%.

Sugar is where the statement changed the forward numbers. The FY26 adjusted operating loss is now guided towards the upper end of the previously communicated £25m-£60m range. The initial view for FY27 is a loss of £70m to £170m. The company attributed the deterioration to the recognition of onerous contract provisions arising from continued low European sugar prices, higher gas costs, and lower yield expectations for the 2026/27 UK beet crop following a prolonged hot and dry summer. Alongside the guidance, ABF said it will cut its UK sugar footprint from four processing sites to three.

Two further items sit in the release. Primark confirmed it will introduce home delivery in Great Britain, having acquired an automated fulfilment site in Sheffield, and will continue investing in value, marketing and digital growth. And the demerger of the Retail business from the Food businesses — announced in April 2026 — is progressing, with completion targeted for December 2027.

The arithmetic on the Sugar range

It is worth being precise about the size of the step, because the framing varies across coverage. FY26 is guided towards the top of a £25m-£60m loss range, so roughly £60m. The FY27 range midpoint is £120m. That is a doubling of the loss, a deterioration of about £60m at the midpoint. At the top of the FY27 range, £170m would be closer to three times the FY26 outcome.

A £60m midpoint deterioration in a group that made £1.73bn of adjusted operating profit last year is material but not existential. The wider point is the range itself. A guidance band £100m wide, issued as an initial view a year out, is an admission that the division's outcome depends on variables — European sugar prices, European gas prices, a beet crop still in the ground — that management cannot forecast with confidence. Investors do not usually mark the midpoint. They mark somewhere below it.

Why the market reacted the way it did

The FY26 earnings upgrade is a rear-view figure. It tells you about a year that ends on 12 September. The Sugar guidance is a forward figure, and it moves the base from which every FY27 and FY28 estimate is built. When a company hands the market a better number for a year that is essentially over and a worse number for the year about to start, the market discounts the first and rebases on the second. A 9% fall on an EPS upgrade is not irrational; it is a duration preference.

Three specific mechanisms sat behind the size of it.

First, the cause is largely external and largely not fixable by management. Onerous contract provisions are recognised when contracted selling prices fall below the cost of fulfilling them. Low European sugar prices set the revenue side; gas costs set a large part of the processing cost side. Neither is under ABF's control, and the gas cost line is itself downstream of the energy shock that took Brent crude above $107 a barrel on the very day of the statement — a near-6% jump in a session, and its highest since May. The decision to close a UK processing site is the lever management does have, and it is a multi-year lever, not a FY27 one.

Second, Primark's European weakness compounds rather than offsets. Continental Europe at minus 4.3% like-for-like is the growth engine the equity story leans on, because the UK estate is mature and Europe is where the store openings are. Total Primark sales still grew, but growth bought with new space while like-for-likes fall is expensive growth. It requires capital and it does not demonstrate that the proposition is winning.

Third — and this is the part that matters most for how the shares are valued from here — the demerger changes what a Sugar downgrade means. Until December 2027, ABF holders own both businesses and can net one against the other. After it, they own two separate securities: Primark as a standalone global fashion retailer on roughly £9.5bn of revenue, and FoodCo as a pure-play food business on roughly £9.8bn. Sugar goes into FoodCo. Every pound of FY27 Sugar loss is therefore a pound of loss attaching specifically to the entity that will not have the retail optionality, and the market is being asked to value that entity for the first time. A £100m-wide loss range is a much larger problem for a standalone food company than it is for a conglomerate that also owns Primark.

The Openbook read

Momentum is damaged and was already soft. A 9.1% single-session fall on a scheduled trading update, in a name that has spent the year being repriced around a structural separation, resets trend measures decisively. The complicating factor for any momentum read on ABF before late 2027 is that the security has a defined end date in its current form, which makes price history progressively less informative as the separation approaches.

Growth reads weakly and the weakness is now located. Primark like-for-like down around 2.6% for the year with Europe the drag; Sugar revenue under pressure from low European prices. Total Primark sales growth of about 2% in the quarter is real but space-driven. There is no line in this update growing for the right reasons, and the group is not being carried by one.

Profitability is the factor that splits in two, and reading it as a single number now actively misleads. On an FY26 basis it holds: group adjusted operating profit broadly in line, adjusted EPS ahead of expectations. On an FY27 basis it steps down by roughly £60m at the Sugar midpoint before anything else is counted, plus around £75m of one-off separation and transaction costs and recurring dis-synergies expected to run below £45m once the split completes. Note carefully that all of these are adjusted figures. Onerous contract provisions are the kind of item that moves between adjusted and statutory presentation, and comparing an adjusted FY27 Sugar loss with a statutory prior-year number would produce a badly wrong answer.

Solvency is the factor least disturbed by this update, and that is the genuine cushion in the story. Nothing in the statement points to funding stress, covenant pressure or a distribution problem; the group is closing a processing site and taking provisions, not raising capital. The forward question is one of allocation rather than capacity: a demerger executed as a dividend demerger has to leave two entities each independently financeable, and the capital structure allocated to FoodCo — the entity carrying Sugar and its £100m-wide loss range — is the disclosure that will settle the solvency read. That detail is not yet public.

Reward/risk has widened in both directions rather than simply worsened. The downside is a FoodCo that lists into a soft European sugar market carrying provisions and a shrinking processing estate, next to a Primark whose European like-for-likes are negative. The offsetting case is that the market has just taken 9% off a group that simultaneously upgraded its current-year earnings, and that the FY27 Sugar range is an initial view a full year out on inputs that are volatile in both directions — European gas prices that spike can also fall, and a beet crop damaged by heat is a single-season event, not a structural one. Investors comparing the group's factor profile against other UK food and general retail names can do so through the Openbook screener.

The read-across

The most direct read is the energy-cost channel, and it runs much wider than sugar. ABF has explicitly identified higher gas costs as a driver of a nine-figure swing in divisional profitability. Any UK or European processor running energy-intensive plant — food processing, packaging, chemicals, building materials — is exposed to the same input on the same timetable. With crude having settled above $107 and the European Central Bank raising all three of its policy rates by 25 basis points on the same afternoon, taking the deposit rate to 2.50%, specifically to stop energy-fed inflation broadening, this is a sector-wide cost condition, not a Sugar anomaly. Holders of BP and other energy names sit on the receiving end of the identical price move.

The second read is UK and European value retail. Primark's split — UK and Ireland marginally positive, continental Europe down 4.3% — is a clean signal that the weakness is geographic rather than about the value proposition. That matters for how investors interpret trading at Next, Marks and Spencer and B and M, whose exposure is predominantly domestic, versus operators weighted to continental European high streets. A read-across that assumes Primark's problem is a value-retail problem will misprice the UK-weighted names.

The third read is structural. ABF's separation is one of the largest UK demergers in progress, and both entities are expected to qualify for the FTSE 100 on admission. Index funds will be required to deal in both. The pricing of FoodCo — a food group carrying a loss-making sugar division into an uncertain European market — becomes the reference point for how the market values the food assets of other conglomerates weighing separations.

What to watch next

• FY26 preliminary results, due in the autumn. The year ends on 12 September. The prelims are where the FY27 Sugar range gets refined and where the group first quantifies the provisions in statutory terms. Watch specifically whether the £70m-£170m band narrows, and in which direction.
• The 2026/27 UK beet harvest. Yields are the single biggest swing factor inside the guidance range and they resolve over the coming months. A better-than-feared crop is the most plausible route to the lower end of the range.
• European sugar prices and gas costs. These two set whether further onerous contract provisions are required. Both are observable continuously, without waiting for a company statement.
• Demerger documentation, ahead of the December 2027 target. The circular will disclose the capital structure allocated to each entity, the final dis-synergy figure against the sub-£45m estimate, and the separation costs against the roughly £75m guided. That package, not this trading update, is what will set the valuation of the food business.
• Primark home delivery in Great Britain. The Sheffield fulfilment site is a capital commitment to a channel Primark has historically avoided. Early evidence on whether it is incremental or cannibalising will shape the Primark growth read into the separation.