Associated British Foods will see sugar profits soar this year as a result of increased production and lower processing costs, according to city analysts.
Experts revealed that ABF’s sugar division can expect substantial profit growth this year, led by a rise in production, which has increased from 1Mt to an estimated 1.3Mt for this year.
Graham Jones, an analyst at Panmure Gordon, said: “We forecast ABF’s first half sugar earnings before interest tax and amortisation rising by 56% to £169M. This comes despite slightly lower profits in China due to lower cane production, reflecting last year’s drought and prices slightly lower than last year’s record highs.
“The UK will see substantial profits growth due to a much better crop, the absence of high processing costs, strong factory performance and high prices.”
ABF confirmed Jones’ predictions and attributed the rise to strong growth in the UK and Spain.
“In the UK, the sugar campaign progressed well,” the firm revealed in a statement.
“Beet processing is now virtually complete and sugar production is now estimated to be 1.3M compared with just under 1Mt last year.
“Profit in the UK in the first half will be well ahead of last year benefiting from the absence of the higher processing costs associated with the harsh winter, a strong factory performance, high sugar content in the beet and higher prices.”
Despite the strong sugar performance, a substantial fall in grocery profits of over £25M had hit overall growth at ABF, according to Jones.
He revealed that restructuring costs, following the closure of two UK bakeries, had dented profits for the period ending March 31.
Ahead of last year
He said: “ABF continues to flag that it only expects first half earnings per share (EPS) to be a little ahead of last year. We forecast 1.7% profit before tax growth to £359M and 2.1% EPS growth to 33.6p.
“This growth comes despite a substantial fall in grocery division profits principally due to restructuring costs of, we believe, over £25M; higher than expected due to the closure of two UK bakeries.”
This was confirmed by ABF, which revealed that restructuring and margin declines at Allied Bakeries in the UK, combined with rising operating costs in Australia, had resulted in “substantially lower” grocery profits for the first half of the year.
“Revenue in the first half is expected to be ahead of last year, but Grocery profit in the first half will be substantially lower,” a statement from the firm revealed.
“In Allied Bakeries, Kingsmill achieved revenue growth but strong competition, driven by a high level of promotion, affected margins. The business has continued to invest, notably with a new bread line at the Stockport bakery. A rationalisation charge has been made for the closure of two smaller bakeries and the cost of further overhead reduction.”
The interim results for ABF were in line with expectations, with all segments delivering revenue growth, according to the firm.