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AB Foods Slides to Two-Month Low on Bleak Sugar-Price Outlook

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Sept. 9 (Bloomberg) -- Associated British Foods Plc, the U.K. maker of Ryvita crispbread and owner of the Primark budget clothing chain, fell to a two-month low after the company said sugar prices in Europe will remain under pressure.

The shares dropped as much as 2.5 percent to 1,805 pence, the lowest since July 10.

Price negotiations with sugar customers in the European Union are “proving challenging with an increasingly negative sentiment,” the London-based maker of Twinings tea said in a statement today, citing an increased availability of sugar.

Accelerating imports from outside the European Union have led to pressure on prices. Refined sugar averaged 723 euros ($953) a metric ton in June, from a January high of 738 euros, latest data from the European Commission show. Sugar is AB Foods’ biggest unit, generating 47 percent of operating profit last year, compared with about a third for Primark.

“Sugar took the shine off the Primark story,” said Martin Deboo, an analyst at Investec Securities in London. With the “sugar profit bubble deflating, it is now Primark that needs to carry the profit can for ABF going forward.”

Overall operating profit for the second half of the financial year will exceed the company’s own expectations, driven by faster growth at Primark, AB Foods said. The chain is set to overtake sugar as the main contributor to profit next year, according to Panmure Gordon analyst Graham Jones.

For this year, Primark’s percentage contribution to group profit will be in the “low forties,” AB Foods Finance Director John Bason said by phone. Profit margins in the second half of the year have been “beating our own expectations,” AB Foods said.

Primark Sales

Sales at Primark stores open at least a year should increase 5 percent in the financial year ending Sept. 14, AB Foods said. That compares with the 5.2 percent median estimate of 11 analysts surveyed by Bloomberg News.

Primark will open its first French store in Marseille just before Christmas, followed by stores in Dijon and three just outside of Paris next year. Store expansion will also focus on the Netherlands, Spain and Germany, Bason said.

The retailer will end its online trial with Internet-only fashion retailer Asos Plc in coming weeks, Bason said.

“That was always the plan,” he said, adding that Primark still has no intention of starting its own online operation.

Adjusted earnings per share for the second half of the financial year “will show good progress,” AB Foods said.

Sales and adjusted operating profit for the sugar division “will be in line with management expectations.”

The shares were down 1.8 percent at 1,818 pence at 9:42 a.m. They have gained 16 percent this year.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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