Associated British Foods will report better than expected interim results next month, following “outstanding performance” at clothing retailer Primark and good revenues from UK sugar, despite the decline of UK sugar production.
UK sugar production for the current year has fallen, the company said in the pre close trading update, down nearly 13% to 1.15mt, as a result of poor sugar beet conditions in 2012. As well as affecting volumes, this reduced the sugar content and prompted a slower filtration process, which, along with the added effects of a weaker euro in the first half of the year, is likely to impact profits.
However, a combination of higher volume sales compared to last year, as well as marginally higher sugar prices helped boost UK revenues. In agriculture, sales of sugar beet feed was also high in the UK, although constrained by a small crop.
South African sugar production also saw a strong H1, which helped offset a decline in Spain and loss-making operations in China which has seen deteriorating sugar prices. Despite increased production in the south of the country, and a new facility in the north, the company mothballed of the two smallest sugar factories, incurring a write down of £22m.
ABF’s grocery business is expecting revenues to be broadly in line with last year, with Twinings Ovaltine growing market share and Allied Bakeries weathering poor wheat harvests satisfactorily. The bread business successfully recovering higher costs through price increases in a highly competitive market, and although overall capital expenditure in the food business was lower than last year, a new plant at Walthamstow is likely to be commissioned in early summer. This follows Allied’s new bread plant in Stockport, which became operational in September, that formed part of a 5-year £35million investment plan.
Progress was also reported in the ingredients business, up 6%, with good progress in baking ingredients’ sales and margins, however the strong performance at Primark is expected to provide a substantial boost to the overall interim results, along with a positive impact on operating cash flow.