Associated British Foods Reports Limited Growth in Food Ingredients

Jan 19 2012 --- Associated British Foods reported its financial results for the year 2011, the group performed well in its sugar production, however the company fared averagely in its food ingredient businesses.

The group’s overrall revenue was up 12%, bolstered by exceptional sales performance from their sugar division and the continuing success of their clothing retail division Primark. Revenues were 21% ahead of last year with higher regional sugar prices, particularly in Europe

 

Although Ingredients revenue was 2% ahead of last year, the difficulties in the yeast and bakery ingredients business, particularly in last year’s second half, continued for the company during the period.  

This reflected raw material cost increases and a highly competitive trading environment in many of their markets.  As a result they forecast some operating profit margin decline in the first half.  Progress was made in improving productivity at the yeast extracts factory in Harbin, China which, combined with growth in enzymes, delivered some improvement at ABF Ingredients..

 

Sugar production for the year is estimated at 1.25 million tonnes compared with just under one million tonnes last year.  Good volumes, high sugar content in the beet, a strong factory performance and high prices are expected to result in a strong profit delivery for the financial year.  Construction of their Vivergo bioethanol plant is nearing completion with commissioning scheduled to commence in the late spring.

 

In Spain, record levels of extraction and throughput are being achieved in the northern campaign while plantings are now complete in the south.  Profit is well ahead of last year benefiting from higher sugar prices and improvements in operating efficiency.

 

At Illovo, sales benefited from favorable regional pricing and profit has improved in all countries.  Plant operations have been satisfactory but crop yields were disappointing.

 

Cane yields in south China continued to be affected by the drought of last year, but sugar production in the north east is expected to be significantly ahead again as a result of the additional beet acreage under cultivation.  Sugar prices have fallen from last year’s record highs but are still well above their historic average.

 

Agriculture revenue was 22% ahead of last year.  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.  Frontier’s sales were also 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.

 

Grocery revenue was 4% ahead of last year.  Twinings Ovaltine continued to perform very well with good growth for tea in the US and Ovaltine in developing markets.  Sales by the UK grocery businesses were also encouraging, particularly in Allied Bakeries where Kingsmill achieved growth.  However, strong competition driven by a high level of promotion has affected Kingsmill margins.  The business has continued to invest and is reviewing its cost base.  Trading remained difficult for George Weston Foods and revenues in the period were in line with last year.  The half year result will include the cost of restructuring currently in progress.  The costs of operating the new Castlemaine meat factory continued to be too high but progress was made in improving productivity.  Revenue at ACH was level with last year.

 

Over all group trading results for the period were in line with expectations.  Economic uncertainty, particularly in the eurozone, and continued pressure on consumer disposable incomes are expected to remain key features of this financial year.  Input commodity costs are subsiding which will now start to benefit the group.  However, AB Sugar is already benefiting from higher sugar prices.  They expect growth in sales and adjusted operating profit in the coming year, with the profit improvement weighted towards the second half.