ABF Says it Could Benefit From Brexit as Profits Jump 47 Percent
08 Nov 2016 --- Cost-cutting across its Ingredients division while arresting a profit decline in its Sugar unit helped full-year profits surge 47 percent to £1.04bn ($1.29bn) at Associated British Foods (ABF).
Full year revenues at ABF- which runs a raft of businesses which span sugar, groceries, ingredients and retail chain Primark- came in at £13.4bn ($16.7bn), up from £12.8bn ($15.9bn) the year previous.
ABF said that Brexit had led to some “short-term uncertainties”, such as a decline in the value of sterling, but changes in legislation and trade agreement, particularly in the areas of trade tariffs and UK agricultural policy, could benefit ABF.
The group said it expects higher adjusted operating profit and adjusted earnings for the 2016/17 year.
Across its Ingredients unit, cost cutting was the key driver to boosting a 22 percent lift in adjusted operating profits to £93m ($116m) in the year.
Its bakery ingredients business AB Mauri maintained its recovery, helped by its performance in North America, where its bakery ingredients products targeted faster growing segments, such as tortillas and flatbreads. Latin America also performed well while cutting costs in China also helped the division.
Within its Ingredients division, its speciality North American lipids business Abitec increased sales in human nutrition applications for cognitive health and weight management.
However, yeast extracts came under price press in the more mature European and North American markets.
ABF said the performance of its Sugar unit had been helped by wholesale cost cuts. Sugar revenues were £1.80bn ($2.24bn), down from £1.82bn ($2.26bn) the year previous while adjusted operating profits nudged up from £33m ($41m) to £34m ($42.3m).
Profits were helped by a reduction in EU stock levels and an increase in world sugar prices.
Additionally, it said the sale of its cane sugar business in south China and taking full ownership of Illovo Sugar would help improve profits moving forward.
ABF said: “There has also been an emphasis this year on working closely with growers, key members of our supply chain, to maximise efficiency and underpin our growth aspirations.”
As governments look to tackle growing obesity concerns, the sugar industry has been a target for health campaigners. However, ABF stressed “it is important to recognise that there is no single response to tackling obesity”.
Revenues across its Agriculture unit were down from £1.21bn ($1.5bn) to £1.08bn ($1.34bn) while profits were down from £60m ($75m) to £58m ($72m)amid a tough environment driven by price pressures across dairy and UK pig prices to their lowest levels for a number of years. The division was further impacted by a diminished UK sugar beet crop in the UK.
Across its Grocery unit, revenues were up from £3.18bn ($3.95bn) to £3.27bn ($4.06bn) while adjusted operating profits grew from £285m ($354m) to £304m ($378m). Strong performing brands were Twinings and Ovaltine.
George Weston, Chief Executive of Associated British Foods, said: “This has been a year of progress for all of our businesses with a substantial expansion in Primark’s selling space, increased margins in all of the food businesses and fundamental structural changes at AB Sugar.”
“The recent decline in the value of sterling presents both benefits and challenges to the group. The diversity of our operations and our broad geographical footprint, combined with a strong balance sheet, equip us well to take advantage of these opportunities as they arise.”
