ABF Expects Strong Increase in Earnings

The yeast and bakery ingredients business has traded well with a strong sales performance from yeast in Latin America and from technical ingredients across the Americas as a whole. Profitability in ABF Ingredients benefited from better lactose prices in the speciality proteins business and from lower overhead costs.

22 Feb 2010 --- Associated British Foods has said in a trading update that interim results will show a strong increase in revenue with growth achieved in all segments for its interim results to 27 February 2010, which are scheduled to be announced on 20 April 2010.

Operating profit will be substantially higher than in the corresponding period last year in all segments except Agriculture, where trading last year benefited from unusually high volatility in commodity prices.  Adjusted operating profit for the group for the half year will be well ahead of last year with growth forecast to continue in the second half.  Net financing costs in the first half will be higher, primarily as a result of the US private placement which was concluded last March and an increase in net financing costs relating to the group’s defined benefit pension schemes.  Adjusted earnings will show a substantial increase at the half year and we remain confident of very good progress in earnings for the full year.

The income statement will include a profit on disposal and closure of businesses of some £24m which is excluded from adjusted earnings per share, arising principally from the sale of the Polish sugar business.

The first half cash flow is expected to be better than the same period last year with a higher profit before depreciation and a lower working capital outflow more than offsetting the budgeted increase in capital expenditure.  Our funding position has benefited from the £115m minority contribution to the Illovo rights issue at the beginning of this financial year.  Net debt for the group at the half year is expected to be close to the £1.14bn at the same time last year.

Operating profit in Ingredients is expected to be well ahead of last year with an improved margin.  The yeast and bakery ingredients business has traded well with a strong sales performance from yeast in Latin America and from technical ingredients across the Americas as a whole.  Profitability in ABF Ingredients benefited from better lactose prices in the speciality proteins business and from lower overhead costs.  Construction of the yeast and yeast extracts plants in Harbin are nearing completion.

Profit from Sugar will be substantially ahead of last year driven by an excellent performance in Europe and a welcome recovery in China.

This year’s UK campaign began well with high beet yield per hectare and high sugar content in the beet.  The harsh winter has extended the campaign into March but yields and sugar content remain high, and sugar production is estimated to be some 1.3 million tonnes compared with last year’s 1.19 million tonnes.  Profit will reflect the higher volumes, better factory efficiencies and lower energy costs together with a strengthening of the euro.  In Spain, sales volumes were ahead of expectations and the new refinery at Cadiz is operating well.

Illovo’s profitability has been reduced by the weakening of the currencies outside South Africa, the impact of the strength of the rand on South African exports and extremely wet weather at the end of the season which reduced sugar production in South Africa and Zambia.  Malawi and Mozambique experienced more favourable conditions and achieved good factory performances.

Sugar prices in China have increased substantially and are currently at record levels.  Sugar production is expected to be lower than last year following the effect of drought on cane yields in the south and a smaller beet crop in the north.  A significant improvement in results is expected year-on-year. 

In Agriculture, UK feed revenues will be ahead in all sectors except sugar beet feed which has been affected by lower prices.  Growth in speciality feeds and nutrition has exceeded expectations, enzyme sales have been encouraging with further registrations of new products in the period and a new feed mill has been commissioned in China.  Adjusted operating profit will be lower than last year’s exceptionally high level, largely as a result of reduced volatility in UK grain markets leading to less trading activity by Frontier. 

Grocery profits in the first half will be well ahead of last year, despite a charge of £19m for the manufacturing reorganisation at Twinings, with a much improved contribution from our US bottled oils operations and good performances from all of our UK grocery businesses particularly reflecting the benefits of restructuring work undertaken last year. 

A strong sales performance by Twinings Ovaltine has driven good underlying profit growth.  Allied Bakeries continued to trade well with higher branded volumes generating an improvement in profit.  Silver Spoon saw an increase in demand for home-baking ingredients and profit also benefited from last year’s packaging plant rationalisation.  Elsewhere in UK grocery, there are signs that the falling demand seen last year in the ethnic wholesale sector is stabilising and Westmill has seen profit improvement although not yet back to the levels experienced two years ago.  Advertising support for Patak’s drove good revenue growth which, together with further improvements in operating performance at the sauces factory in Poland, will lift profits year-on-year. 

A strong Australian dollar has contributed to an increase in sterling translated profits from our grocery business in Australia.  Baking and cereals have achieved underlying profit growth through improved factory performance and an increased focus on cost reduction.  In the meat business, falling commodity costs led to lower prices and consequently lower sales revenues.  Operating margin has been affected by strong competition. Further progress has been made in the construction of the Castlemaine meat factory and we announced the closure of the abattoir in Queensland which had been acquired with the KR Castlemaine business.

In the US, Mazola volumes were higher than last year and margins have improved but Capullo volumes remain under pressure in Mexico.  The Stratas joint venture is now firmly established and performing in line with expectations.  Production at Jacksonville and Champaign, Illinois will have ceased by April.