ABF Boosted by Surge in Sugar Demand, Ingredients Revenues Down 2%

Ingredients’ revenues were 2% lower than last year in the quarter and 1% ahead of last year on a cumulative basis. The operational challenges faced by AB Mauri in the first half have continued in southern Europe and Asia.

12 Jul 2012 --- Associated British Foods plc has reported in a trading statement that group revenue from continuing operations for the 40 weeks to 23 June 2012 was 11% ahead of the same period last year and in line with the growth reported at the half year. As a result of some strengthening of sterling, year-to-date revenue was 12% ahead of last year on a constant currency basis. The translation of third quarter revenues was mostly affected by a weakening of the euro and a 50% devaluation of the Malawian kwacha in May.

The group remains on track to deliver substantial growth in both adjusted operating profit and adjusted earnings per share for the full year.

Ingredients’ revenues were 2% lower than last year in the quarter and 1% ahead of last year on a cumulative basis. The operational challenges faced by AB Mauri in the first half have continued in southern Europe and Asia. Margins remained under pressure from higher input costs and volume weakness. The new yeast facility in Shandong province in China and the expansion of the dry yeast plant at Xingjiang were both successfully commissioned in the period and construction of the new yeast factory in Mexico is progressing in line with expectations.

At ABF Ingredients, the dairy proteins business continued to benefit from a strong dairy market with high lactose and whey protein prices. Product innovation drove growth in the feed and bakery enzymes businesses which performed well.

Sugar revenues in the last 16 weeks were 54% ahead of last year reflecting the strong commercial environment in Europe and to a lesser degree Africa. However prices in China have continued to fall since the half year. Year-to-date sugar revenues were 28% ahead.

As expected at the half year, the UK campaign produced 1.3 million tonnes of sugar which compared with just under 1.0 million tonnes last year. In Spain, the northern beet campaign was successful, the sugar refinery operated at near capacity and the southern beet campaign has now started and is progressing well.

Illovo’s 2012-13 season is now under way. Sugar production is expected to be ahead of last year with sucrose content improving to more normal levels. Following the devaluation of the Malawian kwacha on 7 May 2012, local sugar prices were increased and, together with higher export earnings, will more than offset increased operating costs in local currency terms. However, the devaluation will result in an overall negative impact on profit when translated into sterling.

The Mali government has been unable to fulfil its undertaking to fund the agricultural component of the project that would have seen the development of Illovo’s sugar business in the country. When combined with the deteriorating security situation, the project risk was considered to have increased to an unsupportable level and the decision was taken to terminate further involvement in the project. Illovo’s investment in pre-project expenditure of £15m will be charged as a loss on closure of businesses. This charge is expected to be largely mitigated by the realisation of deferred profit on the disposal, in November 2009, of the group’s Polish sugar operations.

In China, further progress has been made in the north with sugar volumes increasing from 0.2 million to 0.3 million tonnes. Volumes in the south were level with last year at 0.4 million tonnes. However, profit in China is expected to be considerably lower as a result of weaker selling prices.

Production at Vivergo’s bioethanol plant in Hull, an installation of some complexity, which has required an extended commissioning programme, has been delayed until the end of the calendar year.

Agriculture is having another strong year with revenue 10% ahead in the last 16 weeks and 15% ahead in the year-to-date. Feed revenues were ahead in all sectors in the quarter with further strong growth in enzymes and progress in China.

Grocery revenues in the third quarter were level with last year and were 3% ahead year to date. Our most profitable grocery business, Twinings Ovaltine, maintained the momentum of the first half and achieved good growth in the quarter particularly for Ovaltine in its developing markets.

The pressure on UK household incomes has continued this year which has driven consumers to seek value from product choice, promotions and price. The market remained intensively competitive for Allied Bakeries with promotional activity reducing margins. Jordans and Ryvita however performed strongly with both brands responding well to effective advertising. Buoyant home baking, particularly over the Diamond Jubilee holiday, continued to support Silver Spoon and, following its launch in January, the stevia-based sweetener, Truvia, has built a leading position in the sweetener category. Since the end of the quarter we have completed the acquisition of Elephant Atta the UK’s leading ethnic flour brand for a consideration of £34m. This will complement Westmill Foods’ other ethnic brands including Tolly Boy rice, Rajah spices and Lucky Boat noodles.

Vegetable oil volumes increased in the US, benefiting from a recent price reduction, while home baking and spices volumes were level with last year. In Mexico, a weaker peso and continued competitive pressure resulted in lower volumes and trading profit for the quarter.

The difficult retail and competitor environment experienced by George Weston Foods in Australia in the first half continued during the third quarter. Revenues and margin were lower than last year as a result. Some further cost for the restructuring of the sales distribution channels and administration was charged during the quarter.