“Sugar revenues in the second half have been well ahead of last year reflecting the strong commercial environment in Europe [particularly the UK and Spain] and, to a lesser degree, Africa,” according to a management statement released before the firm announces its full-year results for the 52 weeks to September 15 on November 6.
“Profit from British Sugar will be ahead of last year reflecting the excellent campaign and the absence of the weather-related challenges of the previous year. 1.3Mt of sugar was produced compared with just under 1Mt last year,” it said.
While its UK feed business benefited from higher volumes of sugar beet feed, margins were eroded in the pig and poultry feed markets, reflecting another difficult year for the UK livestock industry.
Grocery revenues for the full year will be ahead of last year, ABF predicted.
Price promotions have remained a key feature of the UK market as consumers continued to suffer pressure on household incomes.
“The market remained intensively competitive for Allied Bakeries with promotional activity reducing margins,” it said. “The recent increase in wheat costs will place further pressure on margins. However, good progress was made in reducing its cost base with the closure of two small bakeries and overhead reduction.”
Jordans and Ryvita performed strongly, reflecting an effective advertising campaign, it said.
Silver Spoon was said to have had a good year but volumes and margins have recently come under pressure from increased competition in the consumer sugar market. “Truvia, the stevia-based sweetener, was launched in January and has built a leading position in the sweetener category,” it said.
Shore Capital analysts Darren Shirley and Clive Black said: “It was no surprise that ABF has confirmed an outstanding year’s trading from its global sugar operation.” But, with sugar contracts priced in euros, currency weakness could hit profits they warned. “We therefore believe it is prudent at this stage to forecast a contraction of EU profitability.”
Taking into account a strong performance from Primark, they forecast group current pre-tax profits for 2011/12 of £970M and £1,043M for 2012/13.
Panmure Gordon analyst Graham Jones made a forecast of 15.6% adjusted earnings per share growth to 85.5p.
“As expected, sugar is the key driver of growth for the group, although Primark has seen an impressive acceleration in top-line growth and an improvement in margins in H2 [the second half].” Net debt had fallen from £1.3bn to below £1.2bn, slightly better than expected, he added.
Graham concluded: “ABF will deliver impressive earnings growth in 2012, driven by a significant rise in sugar profits. But it is Primark’s long-term growth potential in continental Europe that most excites us.”
Last week ABF gained regulatory approval for its acquisition of Premier Foods' ethnic flour business Elephant Atta.