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Sugar Drives Associated British Foods

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Sugar Drives Associated British Foods

Sugar Drives Associated British Foods
April 25
11:45 2012

Buoyed by strong performances from its sugar business and its Primark retail arm, Associated British Foods has reported a 3% rise in profit before tax to £329 million on group revenue up 11% to £5.77 billion for the 24 weeks ended March 3rd 2012. AB Sugar increased revenue by 17% to £1.2 billion and operating profit by 59% to £172 million over the previous year. This was driven by a strong increase in the UK, further improvement in Spain and a better performance from Illovo.

In the UK, sugar production for the full year is expected to be 1.3 million tonnes, compared to just under 1.0 million tonnes last year which fell short of sales quota. British Sugar’s interim profit was well ahead of last year reflecting an excellent sugar beet campaign, strong factory performance and higher EU prices.

ABF’s grocery revenue increased by 4% to £1.81 billion but operating profit fell by 31% to £75 million, primarily due to restructuring costs at George Weston Foods in Australia and Allied Bakeries in the UK, margin declines at Allied Bakeries and higher than expected costs of operating the Castlemaine meat factory in Australia.

Allied Bakeries is continuing to roll out the largest capital development programme within the UK bakery industry to improve manufacturing efficiency and upgrade product quality. Construction of the new bread plant and bulk handling at the Stockport bakery is well under way and due to begin commissioning in June. A rationalisation charge has been taken for the closure of two smaller bakeries and the cost of further overhead reduction.

Ingredients revenue increased by 2% to £538 million during the first half but operating profit declined by 42% to £18 million as the challenges experienced by the yeast and bakery ingredients business, seen particularly in the second half of last year, continued. Operating profit was adversely affected in a number of regions by input cost pressures, increased competition and volume weakness. The performance in Europe was adversely affected by increased competition which has made price increases to recover higher input costs difficult to achieve. Bakery ingredients in Spain continued to grow and commissioning of a new plant in Cordoba is expected at the end of the financial year. A rationalisation charge has been taken for a reduction in overhead in the European region.

Primark achieved strong first half revenue growth of 15% to reach sales of £1.62 billion but operating profit rose by a more modest 2% to £154 million.

Looking ahead to the second half of the year, AB Sugar’s investment over recent years, its focus on maximising capacity utilisation and operational efficiency and the strength of regional sugar prices, are expected to drive the full year profit for sugar well ahead of last year. This, together with solid profit growth from Primark in the second half, is expected to more than offset the lower profit in grocery and ingredients.

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