Associated British Foods reports profit gains

By Charlotte Eyre

- Last updated on GMT

Related tags: Cent, Sugar beet

UK-based Associated British Foods (ABF) today reported real
operating profit increased by 11 per cent in 2007,
despite EU sugar reforms and the weak US dollar's effect on
margins.

In a preliminary announcement of results for the year ending 15 September 2007, the company said that overall group revenue, which includes sales of food products, ingredients, feed and clothing divisions, was up 13 per cent to £6.8bn from the year before. Operating profit increased 28 per cent to £556m, although when adjusted to exclude exceptional growth, went up 11 per cent to £622m. "The improvement in adjusted operating profit before exceptional items was delivered despite the adverse impact of sugar reform of some £30m and a £13m adverse currency translation effect primarily as a result of the weak US dollar,"​ the company said. Overall margins for the year were therefore down 0.3 percentage points to 8.2 per cent, from 8.5 per cent in 2006, excluding exceptional items. The sugar division, which currently accounts for one third of sales, reported gains of 72 per cent, up £1,151m from £671m in 2006. ​Adjusted operating profit for the sugar division increased 73 per cent to £199m, while margins also went up 0.2 percentage points to 17.3 per cent. ABF attributed the growth to concentrating on sugar operations in China and Africa, after EU sugar reforms led the company to reduce its quota by 13.5 per cent, or 193,000 tonnes. "Profit in our EU businesses is expected to be lower next year because of the legislation, from €126 per tonne to €173,"​ the company said. Earlier this year, the EU introduced measures aimed at redressing the imbalance in supply and demand across the region. The guaranteed price of sugar was cut in order to reduce European production. ABF invested further afield, such as a recent purchase of a 51 per cent stake in Illovo Sugar, Africa's biggest can sugar producer that has operations in six countries across the continent. The company now hopes £100m in Illovo to increase irrigated sugar cane crops by 50 per cent, ABF said. Other investments have been made in China, in both sugar cane and sugar beet facilities, the company added. "InChinaadditions have been made to our cane sugar capacity in the south and we are investing for the first time in the beet sugar industry in the north east,"​ said chief executive officer George Weston. "We are committed to developing our EU sales by harnessing the quota and tariff free trading available from 2009/10 to the Least Developed Countries." ​ The company is channelling beet crops into the burgeoning biofuel market, Weston said, working on joint ventures with the energy companies BP and DuPont. In ABF's grocery division, margins declined 1.3 percentage points to 5.8 per cent, from 7.1 per cent the year before, while profit went down £153m from £182m last year. The company said that sales from Allied Bakeries in the UK were particularly poor, blamed on "unprecedented" increases in the cost of flour. ABF will now try to negotiate price increases with retailers to try and boost profits in this brand, the company added. Sales of the Australian bakery business in Sydney had been poor in 2006, although the subsidiary had shown a "major improvement" in its performance over the last year. Both health foods, such as Ryvita crispbread, and ethnic foods such as Pataks achieved growth over the year, with the company now aiming to become a leader in the world foods grocery market. "The combination of this authentic Indian food brand with Blue Dragon will greatly strengthen our position in the growth orientated foods market,"​ the company said. As in the grocery division, profits in the ingredients sector fell to £75m from £79m the year before, blamed again on exchange rates. "Our ingredients businesses are almost entirely located outside theUKand are therefore susceptible to the impact of movements in exchange rates on the translation of their results,"​ the company said. ​However, overall sales in yeast grew over the year, the company said, with subsidiary AB Mauri reporting strong growth in South America and south and west Asia. ABF also acquired the European assets of the yeast business of Gilde Bakery Ingredients in 2007, which include a plant in Italy, a 50 per cent stake in the German-based Uniferm and a 10 per cent stake in Somadir in Morocco. ABF, one of the largest UK-based food companies, currently employs 85,000 employees in 43 countries. It has operations in Europe, Africa, the US, China and Australia.

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