ABF Revenues Up 24%

Considerable upward pressure on raw material costs, including molasses and other ingredients, has been experienced and higher energy costs will impact margins in the second half.

10/07/08 Associated British Foods Group has said that revenue for the 40 weeks to 21 June 2008 was 19% ahead of the same period last year driven by strong growth from each of Primark, Agriculture, Grocery and Ingredients.

ABF said that trading for the group since the half year has been in line with expectations. The company noted that continued high commodity costs and substantial increases in energy prices are a significant feature of the trading environment.  Difficult economic conditions are having an impact on consumer demand.  “Nevertheless, with the exception of Sugar where, for well documented reasons, profit will fall short of last year, we continue to expect profit in the rest of the group to show progress in the second half,” ABF said in a statement.

Sugar revenues since the half year were 21% ahead of last year with the benefit of the development of the new beet sugar business in north east China.  Profit comparisons with the prior year will continue to be impacted by EU regime reform although currency will have a positive effect this year with the continued strength of the euro against sterling only partly offset by its weakening against the zloty. 

Since the half year the European Commission has confirmed that a total of 5.65 million tonnes of quota for sugar, inulin and isoglucose has been permanently renounced across the EU.  Almost all of this reduction is effective from October 2008 and appears to have achieved a balance between consumption and supply of sugar within the EU.  ABF have been successful in their application to renounce permanently a further 15,000 tonnes of sugar quota in Poland as part of the second phase of reform and the additional compensation receivable of £6m will be reported as an exceptional credit in the income statement.

In China, sugar prices have been lower as a result of a good crop, despite earlier fears of frost damage to the cane in the south, and profits have been reduced. Construction of the Jianchengjiang mill in Guangxi is well underway and is due to be completed by the end of this calendar year.  Reconstruction of the beet factory at Yi’an in north east China is also underway.  Illovo has traded well and has benefited from higher world sugar prices but the weakness of the rand will impact group profits on translation.  Completion of the first phase of the mill expansion in Zambia was delayed by poor weather during construction, but it is now operational.

ABF’s agriculture businesses continued the strong performance delivered in the first half.  Frontier’s strong position in grain trading and increased demand for farm inputs drove further sales growth and UK animal feeds performed well.

Grocery revenues since the half year were strongly ahead of last year primarily driven by price  increases across the business, which successfully recovered input cost inflation, but also by volume increases and the acquisition of Patak’s.  Twinings Ovaltine and the new World Foods business  performed strongly.  Profit at ACH was impacted by reduced volumes and margins resulting from the ongoing high cost of corn, soy and canola oils.  Allied Bakeries in the UK continued its recovery with higher volumes and improved operational performance and pricing.

ABF recently announced the merger of Ryvita with Jordans the UK breakfast cereal and cereal bar business.  ABF will have a 62% interest in the new business.  The merger, which is expected to complete before the year end, will create a leading position for the supply of products to meet the increasing consumer demand for natural ingredients and healthy eating.  Some cost savings will be achieved and both brands will be developed.  The increased scale will enable a greater impact in all sales channels, particularly in convenience and impulse, and faster overseas expansion of the Jordans brand using the group’s international grocery presence.

In Australia, the acquisition of KR Castlemaine, a leading meat and smallgoods manufacturer, was  completed at the end of March.  The acquired business brings a modern low cost factory at Castlemaine, Victoria and the regional KR brand.  Combined with ABF’s existing meat business, this will provide an opportunity to drive efficiencies and enable a greater focus on product innovation.

Ingredients revenue was 18% ahead, with trading in line with expectations.  Considerable upward pressure on raw material costs, including molasses and other ingredients, has been experienced and higher energy costs will impact margins in the second half.

Sales at Primark since the half year were 14% ahead of last year reflecting the increase in retail selling space.