Associated British Foods grapples sugar, wheat and currency problems

By Rod Addy contact

- Last updated on GMT

Currency exchange rates are just one of the issues ABF is facing
Currency exchange rates are just one of the issues ABF is facing
Associated British Foods (ABF) is grappling currency exchange issues and rising wheat costs amid the rapidly building storm surrounding sugar prices, a company trading statement has warned.

In its pre-close period trading statement, ABF, which owns a range of brands including Twinings, Ovaltine and Allied Bakeries’ Kingsmill and Allinson’s ranges, warned: “With two thirds of the group’s operating profit earned outside the UK, the strengthening of sterling against most of our trading currencies, other than the euro, will result in a loss on translation this year of some £20m.”

Referring to wheat prices, ABF stated: “Wheat prices increased significantly over the summer as a consequence of a reduction in global production. The impact of this on our costs will be reflected in our ongoing discussions with our customers.”

Meanwhile, it confirmed its subsidiary AB Sugar’s revenue and adjusted operating profit would be “well down​” on last year, due primarily to significantly lower EU sugar prices adversely affecting its UK and Spanish businesses. That said, the profitability of its successful African business, Illovo, would be maintained, it stressed.

Sugar price

“The global supply of sugar has moved into surplus and the world market sugar price has reduced,” ​ABF outlined. “The EU sugar regime ended in October 2017, removing sales quotas and constraints on exports.

“As a result of substantially higher EU sugar production in 2017/18, through increased crop area and beet yields, EU prices have fallen faster and more significantly than expected and are now more closely related to these lower world market prices. For our next financial year, the current level of EU sugar prices would represent a substantial reduction on those achieved this year.

“The effect of these lower prices on our UK and Spanish businesses will be only partially offset by continuing performance improvement initiatives and, as previously advised, the profit at AB Sugar will be significantly lower than that achieved this year.”

However, the group reported that its full-year outlook remained unchanged. It expected strong profit performances from Primark, grocery, agriculture and ingredients to more than offset the adverse effect of lower EU sugar prices.

Allied Bakeries

Allied Bakeries had made progress on cutting an operating loss through cost reduction programmes and price increases, said the firm. “Against a background of a continued increase in the market share of private-label bread, investments in the Kingsmill and Allinson’s brands have included new product launches for Super Seeds and premium craft loaves,”​ stated ABF. “Speedibake opened an expanded doughnut facility in the year and continued its focus on cost control.”

Profit had made excellent progress at Twinings Ovaltine, with Ovaltine revenue growth especially strong, led by the brand’s largest markets: Thailand and Switzerland. The Twinings brand had benefited from new launches in the herbal tea segment in the UK, the US, Australia and Italy.

Jordans had continued to drive international expansion, delivering strong revenue growth performances in Australia, New Zealand, Canada and Brazil. Its Ryvita crispbreads brand had launched a range of protein-enhanced variants and a new production facility had been opened at Bardney, providing additional crispbread capacity and improved efficiency.

Patak’s

At ABF’s AB World Foods business, Patak’s continued to grow market share following the launch of Paste Pots, endorsed by Jamie Oliver, while Blue Dragon extended international sales growth in Canada, Scandinavia and Australia.

Westmill Foods’ premium market-leading atta flour, Elephant, had been successfully relaunched with a strong brand presence during Ramadan.

Ingredients’ revenues would outstrip last year’s figures and operating profit would again be well ahead with a further increase in margin, ABF said. Its AB Mauri business had delivered another year of growth in both yeast and bakery ingredients. Trading performance for ingredients in Europe, Middle East and Africa continued to be strong and further investments had been made in research and development.

ABF is scheduled to post full-year results for the 52 weeks to 15 September on 6 November.

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