Sugar boosts growth at Associated British Foods

19-Jan-2012 - Last updated on 20-Jan-2012 at 08:16 GMT

Related tags Associated british foods

A strong performance from its sugar business contributed to overall growth at ABF

Higher sugar prices have lead to “encouraging” growth at Associated British Foods (ABF), according to city analysts, after the firm announced its latest financial results for the period ending January 7.

ABF revealed that its sugar business delivered 21% growth for the period, which contributed significantly to overall growth of 12% for the firm.

Experts confirmed the positive performance and said that sugar production in the UK had risen this year as a result of improved weather.

Weather affected

Graham Jones and Damian McNeela, analysts at Panmure Gordon, said: “Sales rose by 21% driven by higher regional prices, particularly in Europe. Sugar production in the UK is estimated to be 1.25Mt this year, much higher than last year’s weather-affected crop of just under 1.0Mt. This, together with higher prices should drive strong profits growth.”

Overall, like-for-like sales also rose off the back of strong trading over the important Christmas period, the firm revealed. This offset a slower start to the financial year as a result of an “unusually warm” autumn.

Grocery sales at ABF increased by 4%, with Twinings Ovaltine performing strongly. These sales were also propped up by Allied Bakeries, with Kingsmill reporting strong growth.

However, strong competition, driven by a high level of promotion, had affected Kingsmill margins, the firm revealed.

“We expect the grocery business to account for 50% of divisional earnings before Interest, tax and amortisation this year. UK grocery sales at ABF were encouraging, although margins at Kingsmill have been squeezed by high promotional activity,” Jones and McNeela confirmed.

Reasonably subdued

Darren Shirley, analyst at Shore Capital, described the grocery results as “a reasonably subdued performance by ABF’s standards” and that it was “no surprise” that trading remained difficult.

ABF said the strong performance from sugar, combined with improvements in operating efficiency, had resulted in profit growth exceeding last year’s figures.

Ingredients revenue was 2% ahead of last year, but the difficulties in the yeast and bakery ingredients business, particularly in the second half of last year, continued during the period, a statement from the firm revealed.

ABF also said that agricultural revenue was 22% ahead of last year, which Shirley described as “very strong”.

This was attributed to strong sugar beet sales at KW Trident and an “excellent” performance from AB Vista.

Jones and McNeela concluded: “While ABF warns about economic uncertainty, input costs are subsiding, which will now start to benefit the group. Sugar is already benefiting from higher selling prices.

“ABF is our top large-cap pick for 2012, and we believe this trading statement supports our thesis of strong earnings per share growth this year.”