ABF reports solid results despite sticky sugar situation

By Anthony Fletcher

- Last updated on GMT

Related tags: Sugar, European union, British sugar

Associated British Foods (ABF) has reported a 12 percent rise in
annual profits despite ongoing difficulties in the EU sugar sector.

The owner of British Sugar recorded a pretax profit increase yesterday to £590 million in the year to 17 September in line with analyst forecasts, representing an 18 percent rise in year operating profit.

Sales in the agricultural and primary food sector however fell by 8 per cent to £1,541m and profit fell by 1 per cent to £187m. The company said that the decline was affected by the sale of the UK arable business to Frontier, the joint venture established with Cargill.

However, it is also clear that profit declined as a result of the over-supply of sugar in the EU this year, and there are fears that the introduction of a new sugar regime in the EU could damage the sector further. The UK food group has estimated that proposals from Brussels to sharpen the region's sugar regime could slice £10 million from operating profit in 2006/7, and some £40 million per year thereafter.

An overhaul of the oft-criticised European sugar regime that trades sugar at three times the world price is certainly imminent. In June the European Commission proposed a host of initiatives, with plans to cut sugar prices by 39 per cent next year.

"The thrust of the proposals will be to reduce productive capacity in the EU, eliminate subsidised exports and reduce support prices,"​ said chairman Martin Adamson.

However, he is confident that the sector can bounce back.

"Our UK sugar production is highly efficient and we expect British Sugar to continue to be a strong force in the European markets, although an adverse impact on profit can be expected particularly from 2007/8 onwards."

In the UK, British Sugar had a modest campaign with 1.39 million tonnes of sugar produced. In fact, according to ABF, the UK performance was second in the European league for agricultural efficiency.

And although there was a decline in profit at British Sugar in the UK, ABF claims that this was virtually offset by a strong increase in profit from overseas sugar operations in Poland and particularly China.

ABF said that the full year benefits of accession came through in Poland, albeit to a lesser extent than anticipated due to the impact of the over-supply of sugar in the EU and the strength of the zloty relative to the euro. Operational performance was strong and good progress was made in the first phase of a two-year capital development programme to bring standards of efficiency and product quality at the Glinojeck sugar factory up to EU standards.

China is also proving to be a lucrative new market.

"Our sugar business in China had its best year yet, driven by strong market conditions and consistent plant operations,"​ said chief executive George Weston.

"Prices continued to rise during the year as the market reacted to the smaller crop and increased consumption of sugar and there was an improvement in margins. Trading relationships continue to be built with major industrial customers in China who demand high quality and consistent service levels."

Elsewhere, ABF's bakery businesses in both the UK and Australia had difficult years, while the group's international grocery businesses grew sales by 7 per cent to £2,608m and profit by 18 per cent to £188m.

The star performer though was ABF's Primark stores, with profits 30 per cent ahead on the back of a 17 per cent in sales. It confirmed second-half like-for-like sales growth at around 12 per cent, bringing full-year growth to 9 per cent.

Associated British Foods is a diversified international food, ingredients and retail group with sales of £5.6 billion and over 42,000 employees in 41 countries.

Related topics: Market Trends

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