Sugar to halt ABF half-year progress

By Aidan Fortune contact

- Last updated on GMT

ABF predicted growth in most of its divisions besides sugar
ABF predicted growth in most of its divisions besides sugar
A predicted drop in revenue in its sugar division is expected to be the only black mark on Associated British Foods’ (ABF) interim results.

The food processing and retail business posted a pre-close trading update ahead of its interim results for the 24 weeks to 2 March 2019. It forecasted that for the half year, other than the expected reduction in sugar revenue, all of its businesses would achieve sales growth. For the full year, its outlook for the group is unchanged with adjusted operating profit and adjusted earnings per share for the year expected to be in line with last year.

In its grocery division, ABF expected revenue and operating profit in the first half to be ahead of last year on an underlying basis, with a further improvement in margin.

Its Jordans and Ryvita brands achieved sales growth in a number of international markets, while sales of Ryvita Thins grew in the UK, although profit declined due to increased raw material costs.

Sugar losses

The business’ revenue from its AB Sugar division is expected to be lower than the same period last year due to lower EU contracted sugar prices impacting UK and Spanish businesses. As a result, in the first half AB Sugar will record a marginal loss, but operating profit for the full year will remain in line with expectations.

It said: “EU stock levels have been tightening during 2018/19 as a consequence of the lower production in the current campaign. A reduction in the European crop area for the 2019/20 season is expected, and so stocks will remain low, which should further underpin the current upward trend in EU sugar prices.”

Sugar crops are expected to be lower this year in both the UK and Spain.

In the update, it said: “The UK campaign is in its final stages and has continued to progress well, benefiting from good harvesting conditions and strong operating performance at all of our factories. Production this year will be some 1.15mt compared with 1.37mt last year when beet yields reached record levels. Sales for this year are now largely contracted. Crop area for the 2019/20 season is expected to be between 5% and 10% lower than this year.

“In northern Spain, the campaigns at Miranda and Toro are now complete and processing at La Beneza has commenced, with production from beet at some 300,000t, lower than last year due to adverse weather. The beet sugar shortfall will be compensated by increased production from the refining of cane raws at Guadalete, which is expected to yield 170,000t. Reduced beet prices for the 2019/20 campaign have been notified, and volumes will be contracted with growers this spring. The benefit of these reduced costs will be seen next financial year, and is expected to be partially offset by a reduced crop area.”

‘Further measures’ at Allied Bakeries

The business said that work continued to reduce the operating losses at Allied Bakeries. It added that some bread sales volume will be lost next year as a result of recent customer discussions on pricing. It said: “We remain focused on reducing these losses and will take further measures to this end as needed.”

Its ingredients revenues in the first half of the year are expected to be ahead of the previous year, with progress in operating profit. At AB Mauri, trading performance in bakery ingredients in Europe, the Middle East and Africa benefited from the integration of Holgran and Fleming Howden, which were acquired by ABF last year. Price increases were achieved in a number of countries including the important markets of North America and Argentina. ABF Ingredients continued to increase revenue in the first half driven by sales of protein crisps, with further share gains in the expanding US market.

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