ABF to Increase Prices as Commodities Surge

Group revenues were up 10%. Higher sugar prices benefited sugar profitability and price increases will be implemented to recover higher wheat costs.

1/20/2011 --- Associated British Foods plc has issued an interim management statement for the 16 weeks to 8 January 2011,. Group revenues were up 10%, up 7% at constant exchange rates with a trading performance for the period in line with expectations.

When compared with the same period last year sterling was markedly weaker against the South African rand and the Australian dollar which had a positive impact on translated results.  At constant exchange rates revenue from continuing businesses was 7% ahead.

The cost of a number of commodities increased significantly during the period. “Higher sugar prices benefited our sugar profitability and price increases will be implemented to recover higher wheat costs, but higher cotton prices are expected to have some impact on Primark’s margins,” the company warned.

Revenues in ingredients were 6% ahead of last year and at constant currency were 4% higher.  Yeast made good progress in China with higher domestic volumes, and bakery ingredients performed well in South America.  These more than offset the effect of strong competition in yeast in Europe and the US.  At ABF Ingredients, sales of feed enzymes and yeast extracts were strong.  However, higher molasses prices in China have reduced operating margins and commissioning costs of the new yeast extracts factory in Harbin, China will adversely affect profit in the first half.

Revenues in Sugar were 7% ahead of last year with higher sugar prices in all regions. In the UK, sugar beet yields at the beginning of the campaign were in line with expectations.  However, the very recent sharp rise in temperature following the prolonged period of extremely cold weather before Christmas is having an adverse effect on the quality of sugar beet still to be processed.  75% of the crop has been processed but the effect on the remainder is still to be determined and a further update will be provided in the pre close period trading update on 28 February 2011.  The bad weather also delayed the final stages of construction of Vivergo’s bioethanol plant by two months and production is now expected to commence at the beginning of the new financial year.

The campaign in Spain is progressing well but a shortage of imported cane raws has constrained volumes processed at the Guadalete refinery.  The profit from Azucarera will be higher than last year with improved pricing and last year’s profit being unusually low due to the sale of high-cost inventory brought forward from the previous year.

At Illovo, operating profit was lower than in the same period last year.  Serious drought in South Africa has reduced sugar production below expectations but, with an increase in Zambian production, the total volume for their year to March 2011 is expected to be similar to the prior year.

In China, the North is expected to achieve a larger beet crop driven by increased acreage and improved yields.  However, in the South, cane yields have been affected by drought during the summer.  Record sugar prices are expected to drive a strong increase in profit offset, in part, by lower sugar content for both beet and cane and by higher prices paid to farmers.

Each of the UK Agriculture businesses achieved good growth with particularly strong sales of sugar beet feed by K W Trident and Premier Nutrition’s starter feed and pre-mixes.  Trading at Frontier benefited from farmers selling their grain earlier than last year.

Revenue in Grocery was 9% ahead of last year.  Twinings Ovaltine performed strongly, notably in the UK and Australia, and good growth was achieved by all of the UK grocery businesses.  Further increases in Kingsmill volumes and market share drove a good result at Allied Bakeries.  The trading performance at George Weston Foods was below last year.  Price deflation, driven mainly by promotional activity across the market, and increased competition affected both the bread and meat businesses.  Commissioning of the Castlemaine meat factory has commenced and is progressing well.

Selling price increases are planned, or have already been implemented, to recover higher commodity costs, particularly in wheat, corn oil and spices.  Delays in securing these increases will adversely affect margins and the impact of continued rises in commodity costs will need to be carefully managed.