Associated British Foods (ABF) has reported that it has traded in a "challenging operating environment" and against macroeconomic headwinds in the year to 12 September, as its profit before tax dropped 14% year-on-year to just over £1.45bn.

The food, ingredients and retail group reported that its revenue decreased by 1% year-on-year to £19.58bn, while its operating profit fell by 13% to £1.5bn, reflecting lower profit in Primark.

In its retail division, sales increased by 2% to £9.8bn, while UK like-for-like sales grew by 0.5%.

However, its operating profit dropped by 12% to £1bn, reflecting increased investment across price, marketing and digital initiatives, as well as the UK clothing retail environment remaining "difficult", following cautious consumer sentiment and challenging weather patterns.

Furthermore, operating profit across grocery and ingredients dropped by 11% and 8% respectively, following softer demand in its US markets.

The update comes as ABF announced its decision to demerge Primark from its food business. It stated that the work on the separation is progressing well, and the demerger is set to complete in December 2027.

ABF’s chief executive, George Weston, stated: "Our results this year reflect a challenging operating environment and macroeconomic headwinds. We have focused on what we can control, taking targeted actions to drive performance while making good operational and strategic progress and continuing to invest in long-term growth.

"In Primark, we took significant steps to re-energise our customer proposition this year, both enhancing our product offer and strengthening our value credentials, underpinned by increased investment in marketing and digital engagement. Our key priority areas, the UK and womenswear, delivered growth and outperformed our other markets and categories.”

"In AB Foods, profit was impacted by US consumer weakness in certain categories and lower European sugar prices. However, this masked encouraging growth across a number of brands and businesses, supported by continued investment in product innovation, marketing and targeted acquisitions."

In its outlook, ABF said it expects its adjusted operating profit and earnings per share to be below 2026 in the next financial year.

It remains cautious on consumer sentiment and the impact of inflation and higher energy costs on its businesses, but it expects to make continued strategic progress across the group. This includes strengthening Primark’s customer proposition, integrating Hovis, restructuring its UK sugar business and commissioning a new yeast plant in India.

Following the update, shares in ABF fell by 4.6% in early trading.

Head of markets at AJ Bell, Dan Coatsworth, concluded: "ABF’s diversified business structure is proving to be of little benefit as most parts of the group are struggling. Still primarily known as the owner of Primark, ABF’s discount retail chain is seeing pressure on like-for-like sales and margins. Primark’s key selling point is its bargain basement prices, making it more difficult to pass rising input costs on to its customers.

"The UK and Ireland business performed marginally better than mainland Europe but was still sluggish, and management will hope that plans to introduce a home delivery service can breathe some new life into the business.

"The group is at an inflexion point as the demerger of Primark moves yet closer. Focus on the performance of its retail business is likely to become increasingly unrelenting as this strategic shift approaches, and the consumer environment does not look like it will get more helpful in the short term."

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