ABF takes £98M hit on its ethanol joint venture

By Michael Stones contact

- Last updated on GMT

Low oil prices and the weakening euro were blamed for ABF's £98M hit on its joint venture bioethanol business
Low oil prices and the weakening euro were blamed for ABF's £98M hit on its joint venture bioethanol business

Related tags: Petroleum

Associated British Foods (ABF) has blamed low oil prices and the weakening euro for its £98M write down on its investment in the joint venture bioethanol business Vivergo Fuels.

ABF said in a statement: “… in light of the continuing fall in crude oil and bioethanol prices, and the further weakening of the euro against sterling, it ​[ABF] has taken the decision to impair its investment in Vivergo Fuels Limited, its wheat-fed bioethanol joint venture with BP and DuPont in the UK. 

“The interim results for the 24 weeks ending February 28 will include a non-cash exceptional charge of £98M.”

Global oil prices have more than halved over the past eight months, with Brent crude oil falling below $50 a barrel and US crude below $48 a barrel.

Ethanol prices are linked to crude oil because the biofuel is an alternative to gasoline.

An 11-year low against the dollar

The euro reached an 11-year low against the dollar last month, after the victory of the Syriza party in the Greek elections. The new Greek government has pledged to renegotiate with Brussels repayment of the nation’s €7n debt bailout. The outcome has led some analysts to warn the euro could become fatally undermined​ if the Greek government defaulted on its debt and its anti-austerity policy was adopted by Portugal, Spain, Italy and Ireland.

The Hull-based Vivergo Fuels will be the UK’s biggest producer of bioethanol when the plant reaches full production. A spokesman for the business described the market conditions as “extremely challenging”, ​due to the devaluation of the euro and the fall in bioethanol prices.

“In addition, the increase in the blend ratio of bioethanol in gasoline to meet the legislation for renewable transport fuels has developed slower than expected, impacting the demand for the bioethanol that we produce,”​ he added.

Environmental benefits

The spokesman added that shareholders remained fully supportive and believed in the importance of bioethanol as a renewable transport fuel that delivers both economic and environmental benefits.

Vivergo pledged to maintain efficiencies while ensuring safe and effective operations across its business.

ABF is a diversified international food, ingredients and retail group with sales of £12.9bn and 118,000 employees in 47 countries. Its business is divided into five segments: Sugar, Agriculture, Retail, Grocery and Ingredients.

Meanwhile, falling oil prices would result in lower production and distribution costs​ for food manufacturers, according to a recent report from Rabobank.  

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