ABF sugar and ingredients shine, but profits drop

20-Apr-2009 - Last updated on 21-Apr-2009 at 10:48 GMT

Associated British Foods (ABF) has reported strong growth in its sugar and ingredients divisions for the first half of the financial year but the group’s profits have fallen.

ABF released what it described as “reassuring” interim results, given the challenging economic conditions, with group revenue up 18 per cent to £4,374m.

However, operating profit for the six months until February 28, 2009 dropped seven per cent to £260m. Profit before tax was down 33 per cent to £178m and basic earnings per share down 31 per cent to 17.6p, which it said reflected a charge for the sale and closure of two US businesses.

George Weston, chief executive of ABF, highlighted the strong profit growth in its sugar and ingredients divisions, as well as it retail division Primark.

He added that ABF agriculture arm almost achieved last year’s performance but grocery result were “disappointing”.

Weston said: “Profits in sugar improved significantly over last year benefiting from increased stability in the EU sugar industry, a strong performance from Illovo and the strength of the euro against sterling.

“Grocery profits were hit by a substantial margin reduction at ACH (ACH Food Companies) and the impact of consumer down-trading on a number of our businesses which more than offset good performances by Twinings Ovaltine and Allied Bakeries.”

He added that grocery was also adversely affected by high priced contracts in US corn oil.

Meanwhile, Martin Adamson, ABF chairman, said that economic conditions were unlikely to improve in the next six months and its businesses and their customers will face continuing uncertainty.

However, he added that ABF expects to see progress in operating profit in the second half of the year and said: “The market positions of most of our businesses will stand them in good stead.”

Sugar

Operating profit from sugar increased 21 per cent on last year from £58m to £70m while revenue rose from £567m in 2008 to £690m.

The UK business saw a high yielding sugar crop estimated at 1.19m tonnes, 13 per cent ahead of last year.

ABF also claims that factory operations set new performance records with high sugar extraction rates and a much lower net energy cost.

However, the Polish crop was smaller than expected with a relatively dry summer and autumn adversely impacting beet tonnages and sugar content.

Meanwhile profit at Illovo was ahead of last year due to strong sales performances in all countries outside of South Africa and a modest recovery in world sugar prices.

But its China business was “severely impacted by sugar prices which remained depressed throughout the first half of the year”.

Ingredients

Ingredients revenue increased 24 per cent from £389m in 2008 to £483m this year while operating profit increased 21 per cent from £33m to £40m.

The division consists of AB Mauri, which makes yeast and bakery ingredients, and AB Ingredients, which includes AB Enzymes; the yeast firm Ohly and Protient, which makes whey protein ingredients among others.

These businesses are almost entirely located outside the UK and results have “benefited significantly” from the weakness of sterling against the US dollar and the euro.

Grocery

Grocery revenue increased 22 per cent from £1,274m to £1,551m but operating profit fell from £88m to £62m.

ABF this was largely attributable to ACH in the US but Silver Spoon and George Weston Foods in Australia also contributed and masked encouraging progress elsewhere.

For example, Allied Bakeries, which includes the Kingsmill brand, reportedly saw good growth in branded volumes and a further improvement in profit.

Meanwhile the bakery business in Australia saw consumers switch from premium branded to own-label products which had an adverse effect on bakery margins.