Associated British Foods, international food, ingredients and retail group, today (7 November) posted an EPS decline of 3% and, although the group issued an upbeat outlook for its retail segment, its food division suffered due to changes in the EU sugar regime and increasing wheat and energy costs.

AB Foods operates low-price fashion stores Primark and manufactures the Kingmill, Ovaltine, Twinings, Ryvita and Silver Spoon brands. The group said that adjusted pre-tax profits slipped to GBP559m (US$1064.39m) in the year to 16 September, the top of analyst forecasts of GBP550m to GBP560m. Gains were driven by a 7% increase in revenue, which rose to GBP6bn.

Operating profit declined by 21% to GBP413m, profit before tax dropped 20% to GBP419m and basic earnings per share fell 21% to 38.1 pence after an exceptional charge  of GBP97m for the reorganisation of British Sugar.

The company’s share price declined in morning trade, dropping 2.79% to 827.28 pence at 12.30pm (GMT).

The company had warned of lower earnings back in September due to the negative impact on its sugar business of a cut in European Union sugar support prices, higher wheat prices cutting into Kingsmill margins and higher energy costs. Although AB Foods said that it hopes to recover cost rises at Kingsmill by increasing the price of bread, the company does not expect to see a profits gain for this division in the current year.

“This year’s performance demonstrates the resilience of the group in the face of a steep increase in energy costs and the profit impact of EU sugar regime reform. We have taken major steps in the development of our businesses this year. In particular, British Sugar and Primark have emerged stronger and better positioned,” AB Foods chief executive George Weston said.