ABF Predict Revenue Growth in All Business Divisions, Highlights Strong Growth for Sugar

Feb 27 2012 --- Associated British Foods plc has announced growth in its half year profits. This has primarily been driven by its clothing retail division Primark. The interim results for the group will be in line with expectations with all segments delivering revenue growth. Adjusted operating profit for the group will be ahead of last year with an exceptionally strong performance from Sugar.

 

Net financing costs in the first half will be higher than last year reflecting the higher level of net indebtedness during the period.  Earnings per share for the first half are expected to be a little ahead of last year.

 

Profit from Sugar in the first half will be substantially ahead of last year driven by a strong increase in the UK, further improvement in Spain and a better performance from Illovo.

 

In the UK, the sugar campaign progressed well.  Beet processing is now virtually complete and sugar production is now estimated to be 1.3 million tonnes compared with just under 1.0 million tonnes last year.  Profit in the UK in the first half will be well ahead of last year benefiting from the absence of the higher processing costs associated with the harsh winter, a strong factory performance, high sugar content in the beet and higher prices.

 

Last year’s drought in south China reduced cane yields and the sucrose content is also lower.  Sugar production will be less than last year as a result.  Sugar production in the north east is expected to be significantly ahead again, as a result of the additional beet acreage under cultivation.  Profit for China is expected to be lower than last year as a result of the difficulties in south China and prices which are below last year’s record highs.

 

Each of the agriculture businesses achieved good revenue growth in the period led by K W Trident’s strong sales of sugar beet feed and another excellent performance from AB Vista, their international micro-ingredients feed business.  First half profit from the UK and Chinese feed businesses will be similar to last year.  Frontier’s sales in the period were ahead of last year although lower grain prices have seen a fall in trading volumes and profit from this joint venture is not expected to reach last year’s very strong level.

 

Revenue in the first half is expected to be ahead of last year but Grocery profit in the first half will be substantially lower.  This is driven by the cost of restructuring at George Weston Foods in Australia and at Allied Bakeries in the UK, and by margin declines at Allied Bakeries and higher than expected costs of operating the Castlemaine meat factory in Australia.

 

Twinings Ovaltine continued to perform very well with good growth for tea in the US and for Ovaltine in developing markets.  The UK grocery businesses of Silver Spoon, Westmill Foods, Jordans Ryvita and AB World Foods traded in line with expectations and generated profit in the first half similar to last year.

 

In Allied Bakeries, Kingsmill achieved revenue growth but strong competition, driven by a high level of promotion, affected margins.  The business has continued to invest, notably with a new bread line at the Stockport bakery.  A rationalisation charge has been made for the closure of two smaller bakeries and the cost of further overhead reduction.

 

Trading remained difficult for George Weston Foods although recently they have seen some improvement in the Tip Top bread business.  Although revenue in the period is expected to be only marginally lower than last year, the costs of operating the new Castlemaine meat factory remained too high but progress continued to be made in improving productivity.  The half year result will also include a provision for the costs of reducing overheads and restructuring the business.

 

Revenue at ACH will be level with last year with oils pricing reflecting easing corn oil costs, and spice volumes affected by high price levels and customer promotion of private label.

 

Although revenue in the first half is expected to be ahead of last year, the difficulties experienced by the yeast and bakery ingredients business, particularly in last year’s second half, continued this year.  Raw material cost increases and a highly competitive trading environment in many of their markets led to considerable pressure on margins and a much lower operating profit. Progress was made in improving productivity at the yeast extracts factory in Harbin, China which, combined with growth in enzymes, delivered a profit improvement at ABF Ingredients.