Sugar Sweetens Associated British Foods Profits

20 Apr 2017 --- Associated British Foods (ABF) has published its interim first-half results which sees pre-tax profits at the food and fashion group jump to £624 million (US$800 million) by 35% in the 24 weeks to March 4. And revenues at the British multinational food processing and retailing company went up by 19% to £7.3 billion (US$9.3 billion).

The group achieved “a more acceptable rate of return in sugar”, while further progress was made by the ingredients and grocery businesses. 

Chairman Charles Sinclair said how pleased he is with the “excellent progress across the whole group”, as revenue of £7.3bn in the first half was 19% ahead of last year and adjusted operating profit of £652 million (US$835 million) was 36% ahead. 

“The underlying growth of the group was therefore strong with revenue up 7% and adjusted operating profit up 23% at constant currency. Net financing costs remained at a similar level to last year primarily due to the effect of translation of interest on our foreign currency denominated debt. As previously indicated, last year’s tax rate benefited from the revaluation of deferred tax to reflect announced reductions in the UK corporation tax rate and, as a result, this year’s underlying rate has increased from 21.3% to 22.7%,” he says.

He also says how adjusted earnings per share were 30% ahead at 59.7 pence and during this period the company completed the disposal of two businesses; US herbs and spices and its south China cane sugar operations. 

“These disposals generated a profit of £255 million (US$327 million), with an associated tax charge of £82m (US$105 million), both of which are included in the group’s statutory performance measures. As a result, profit before tax was 92% higher than last year and earnings per share were 79% ahead.”

He also pointed out how 2016 represented a “turning point” for the sugar business which was the single largest driver of the group’s underlying profit improvement in the first half. 

“Higher sugar prices and further significant savings generated by performance improvement both contributed to this and to a more acceptable return on investment. Illovo is the leading producer of sugar in Africa and our move to full ownership last year has enabled us to focus on accelerating its performance improvement and commercial development in markets with high growth in both population and income per capita.”

“I would also highlight the major contribution made to the group’s profit growth by the substantial increases from Grocery and Ingredients.”

Speaking about Brexit, Sinclair added that the UK’s decision to leave the EU has prompted a team at the group working for several months to determine the impact that it will have on the group’s businesses.

“Our businesses are now working to seize the opportunities and mitigate any risks. We are actively engaging with a number of Government departments to ensure that these opportunities and risks are recognized,” he adds. 

The Board has also declared an interim dividend of 11.35 pence per share, an increase of 10% on last year. The dividend will be paid on 7 July 2017 to shareholders registered at the close of business on 9 June 2017. 

Revenue momentum is expected to continue across all of ABF businesses in the second half, but profit growth, at current exchange rates, will be be tempered primarily by a smaller translation benefit and the full effect of the devaluation of sterling against the US dollar.

“Our outlook for the group’s full year results has improved and we now expect to report good growth in adjusted operating profit and adjusted earnings per share.”