Grocery and Primark offset poor sugar prices for ABF

By Michael Stones

- Last updated on GMT

Allied Bakeries' revenues and profit will both be up on last year, predicted ABF
Allied Bakeries' revenues and profit will both be up on last year, predicted ABF

Related tags Operating profit Associated british foods Sugar Sugar beet

Strong profit performances by Associated British Foods’s (ABF’s) grocery and ingredients divisions and Primark will help to offset lower sugar prices and currency factors, predicted the food giant in a trading update today (September 8).

Both revenue and operating profit for AB Sugar will be “substantially lower”​ than last year, warned the firm. It blamed the fall on tumbling European sugar prices, lower volumes in north China and a £20M dent in operating profit due to currency factors.

The world sugar price remained unsustainably low – at an average of 17 cents per pound – well below the global average cost of production, said ABF. “In Europe, prices were driven down by competition among producers positioning for growth in new markets ahead of the removal of quotas in 2017,” ​it added.

Above average quota stock across the EU, following the EU’s exceptional measures in 2012, also contributed to the problem.

British Sugar produced 1.32Mt of sugar compared with 1.15Mt last year. Higher beet yield and sugar content resulted from good growing conditions lasting into the mild winter.

Current costs

Estimates for the current crop suggested results for the 2014/15 campaign could be well ahead of this year. “We have the capacity to deal with a larger crop and are confident of our ability to process higher volumes than in recent years, which will be a particular advantage in a post quota environment,”​ said ABF.

The firm said it would incur an additional £30M in costs this year after growers negotiated higher beet prices in summer 2013. Negotiations for delivered beet costs for the 2015/16 campaign have been concluded with a cut of about 20% on last year’s level. “This will make a major contribution to ensuring a more sustainable UK beet sugar industry; reflective of the new commercial environment for EU sugar,”​ said the firm.

Contract negotiations with EU customers for the 2014/15 marketing year were well under way with expectations of much weaker selling prices than the current year.

ABF’s grocery division will show good growth in operating profit, driven by George Weston Foods in Australia, ACH Foods in the US and Twinings Ovaltine – all well ahead of last year. Revenues will be level with last year, at constant currency, but will be adversely affected by the strength of sterling, said the firm.

Allied Bakeries, revenues and profit

At Allied Bakeries, revenues and profit will be up on last year with higher branded sales and an increase in market share driven by the launch of the high-fibre white bread Kingsmill Great White. A new bread plant in Stevenage was due for commissioning in November and modernisation of the Glasgow bakery was due soon. 

Twinings Ovaltine delivered double digit revenue growth in tea both in the UK, where green tea and infusions were the main drivers, and in the US where it remained the fastest growing tea brand.

Silver Spoon’s revenue and profit will be well below last year, due to a particularly competitive UK packed sugar market. Last year saw the loss of a number of granulated sugar contracts and considerably lower prices.

But revenue and profit at Jordans and Ryvita will be ahead of last year.

The jewel in ABF’s crown remained Primark – with full year sales predicted to be up by 17% on last year. It attributed the growth to rising retail selling space, like-for-like sales growth and better better sales densities in the new stores.

A lease for some 6,503m2​ of selling space at Downtown Crossing in the heart of Boston, Massachusetts has been signed and ABF expects this store to open in late 2015.  Negotiations are under way to secure further stores in the north east with the intention of trading from up to 10 stores by late 2016. The US stores will be supported by leased warehousing in the region.

Primark opened 28 new shops in the year to September 13, bringing the store total to 278. The business aims to open its first US store in Boston towards the end of next year.

Adjusted earnings per share for the full year are expected to be ahead of last year. Year-end net debt is expected to be further reduced from last year’s £0.8bn to some £0.5bn this year.

ABF will issue its full year results for the year to September 17, 2014 on November 4.

Read ABF’s trading update here​.

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