Energy costs and Primark slowdown to hit AB Foods

Associated British Foods signalled yesterday that profits will be lower this year than last after earnings from sugar dwindled, energy costs soared and growth of sales of discount clothing slowed.

Tougher global competition and a reduction of sugar-beet subsidies from the EU will hurt the company, which owns Silver Spoon and derives about a fifth of its profits from sugar. ABF plans to close two of six sugar beet factories next year.

Across the group, which also owns the Primark discount clothing chain, profits before tax are expected to fall to about £545m this year from £590m in 2005. Burgeoning energy costs will trim profits from ABF's bakery and discount clothing operations.

Primark accounts for about 30 per cent of group profits. John Bason, the finance director, declared the division was "going like a train", but not all analysts were convinced.

Underlying sales at Primark are expected to grow by 3 per cent this year.

Andrew Wood, an analyst at Sanford Bernstein, said: "The big news is the lack of like-for-like growth in Primark, which has been the jewel of AB Foods' business for some time. We do expect a recovery in operating performance in 2007 but continue to believe that investors will react negatively to the short-term disappointments."

Other analysts, including Merrill Lynch, said Primark sales fell short of estimates. However, Merrill expected the opening of further Primark stores to offset lower profits at British Sugar.

ABF said it was opening one Primark outlet a week, and had opened its first in Spain. The shares edged 0.5p higher to 820p.