EU sugar shake-up hits AB Foods profits

The European Union's attempt to create a fairer market for sugar producers in some of the world's poorest countries has hit profits at Associated British Foods, the conglomerate behind British Sugar and the fashion retailer Primark, by more than feared.

The sugar shake-up, which will open up the EU market to global competition from 2009, cost ABF £30m in the first half. The group was also hit by higher energy costs in its home market. Adding to ABF's woes, its UK bakery arm, which owns the Kingsmill brand and makes own-label loaves for supermarkets, reported lower profits after sales fell.

Shares in the group, which investors normally rely on to outperform, fell 6.5 per cent to 788.5p after analysts slashed their full-year forecasts. Its broker Panmure Gordon has cut its full-year profits forecast by 3 per cent to £565m. The problems at British Sugar overshadowed another strong contribution from Primark, the fashion retailer. The chain is set to double its selling space in the UK after its purchase of former Allders and Littlewoods stores. Like-for-like sales at Primark rose 6 per cent during the first half, way ahead of the retail market, which helped the division's profits rise 20 per cent to £71m.

Primark is to take on the Spanish king of fast fashion, Zara, in its home market, planning to open its first store in Madrid next month.

ABF has invested in Primark to decrease its dependence on British Sugar. It is also seeking to buy a South African sugar producer, Illovo, to help it secure cheaper raw sugar from outside the EU. In the 24 weeks to 4 March, pre-tax profit fell 13 per cent to £234m on sales up 10 per cent at £2.9bn.