Publishing its trading update for the 23 weeks to February 26 2011, ABF said that results had been in line with expectations, with year-on-year operating profits ahead of 2010 in all segments apart from the firm’s ingredient’s division.
British Sugar’s profitability took a £20m hit from the poor English weather, whilst drought hit the output of South African division Illovo.
“In the UK, the sugar campaign started well. However, the very sharp rise in temperature in January following the prolonged period of extremely cold weather before Christmas had an adverse effect on the quality of sugar beet,” said ABF.
But sugar stronger than expected
With beet processing almost complete, ABF said it expected to produce 1m tonnes of sugar this year, compared with 1.3m tonnes in 2010, with the firm's 1.056m tonne sales quota met by supplementation from third-party sources of sugar and draw-downs from existing stocks.
However, ABF said record sugar prices in China and improved pricing in Spain meant that divisional profits were ahead of those recorded in the first half of 2009/10; stockbroker Panmure Gordon said it predicted divisional earning before deductions of £250m-£260m when final interim results are announced on March 5.
Graham Jones, executive director of equity research, Panmure Gordon said that “sugar looks stronger than expected”, although he said the £20m loss and ABF’s higher beet processing costs meant “we believe the gross cost is much higher, but we understand that British Sugar has raised sugar prices by around €125 per tonne given the exceptional conditions”.
Negative trends in update
Grocery profits will be up year-on-year, said ABF, helped by a reduced need to fund manufacturing reorganisation: Twinings Ovaltine and the UK businesses performed well, although George Weston Foods (Australia) disappointed.
Kingsmill (Allied Bakeries) increased its volume and market share, although ABF warned that margins are under pressure from rising wheat costs “only partially recovered” through price increases passed on to customers.
“Whilst management guides that group interim performance will be in line with expectations, there are undoubtedly more negative trends in the update than we had hoped,” said Shore Capital.
ABF said that capital expenditure increased due to expansion projects and higher commodity prices, while it predicted £1.4bn net debt for the half year and £1bn by end of 2011.