ABF Q1 Revenues Up 13%, Sugar Falls

Sugar revenues were 12% lower than last year largely because, as previously reported, the equivalent period last year benefited from the early shipment of export sales from the UK. Ingredients revenue was 16% ahead.

17/01/08 Associated British Foods (ABF) has said that group revenue for the first 16 weeks was 13% ahead of the same period last year driven by strong growth from each of Primark, Agriculture, Grocery and Ingredients. This was marginally offset by lower revenues from Sugar.

Sugar revenues were 12% lower than last year largely because, as previously reported, the equivalent period last year benefited from the early shipment of export sales from the UK. Profit in the UK will be lower than last year, mainly as a result of further effects of the EU sugar regime restructuring, but also higher energy costs and a smaller crop. Poland has had a record crop but profit will also suffer from regime changes. The recent strengthening of the euro will benefit both businesses. Sugar production in southern Africa will be lower than expected as high rainfall levels have made it impossible to harvest all available cane. This has particularly affected South Africa and Zambia. Illovo has announced an investment of £100m for the construction, in Mali, of a new sugar mill with an ethanol and electricity co-generation unit, in which it will have a 70% stake. It will manage the agricultural development to produce the sugar cane required to supply this new facility. A total of 11 sugar beet factories have now been acquired in north east China and the campaign is progressing well.

ABF said its agriculture businesses made a strong start to the year with revenue up 20%. Frontier benefited from its operations in the wheat market and UK animal feeds performed well.

Sales at Primark were 26% ahead of last year reflecting the increase in retail selling space and strong like-for-like sales growth. Christmas trading was ahead of the company’s expectations.

Grocery revenue was 15% ahead with good sales growth from Twinings Ovaltine and a continuation of the improvement seen in the second half last year from Allied Bakeries. Wheat prices remain high both in the UK and Australia but have now been successfully recovered through pricing. Trading by the new world foods business, which combines the Patak’s and Blue Dragon brands, is encouraging. As expected, the sharp increases in corn and soy oil costs in the US have led to margin pressure and lower volumes at ACH, but price increases have been made to improve profitability.

Ingredients revenue was 16% ahead. ABF are investing £50m in additional yeast and yeast extract capacity in north east China and £17m in enzyme capacity expansion in Finland.

Cashflow for the period and the group’s net debt are in line with expectations although working capital is higher than forecast as a result of the impact of higher commodity prices on stock values and volumes.

ABF said that trading in the current year has been fully up to expectations. As previously highlighted, reform of the European Union sugar regime will have a large negative effect on this year’s profit. However, we continue to expect profits in the rest of the group to show good progress despite volatility in some commodity prices.