Associated British Foods, in announcing its overall results for the year to 17 September 2011 today, said its ingredients division achieved a revenue increase of 5% over the 12 months but operating profit fell by 46% as a consequence of significant raw material cost increases and a highly competitive trading environment in many of its markets.
Speaking to FoodNavigator.com, Darren Shirley, an analyst with Shore Capital, said that he estimates there will be a revival in the ingredients segment based on the removal of costs related to the commissioning of the Harbin yeast plant in China coupled with the easing of molasses costs in ABF’s key markets.
The reduced pressure on molasses prices, he continued, should also improve margins on the yeast side, as they are used as a substrate in yeast manufacture.
“While still not expected to reach the levels of 2009/10, the category will bounce back moderately.
Raw material costs have hit the segment though making the value-added ingredients such as enzymes more resilient that the commodity-based ones, with continuously higher input costs proving a challenge to pass on to customers - a factor noted by Dutch bakery ingredients supplier CSM last month as it issued its profit warning,” said Shirley.
The company reports that AB Mauri, the yeast and bakery ingredients business, achieved revenue growth throughout the year, driven primarily by good performances in Asia and South America.
“However, difficult market conditions in Europe and North America and substantial raw material cost inflation in a number of key markets saw operating profit sharply lower.
The European yeast market was extremely competitive all year and weakness in the bakery industry in North America led to lower sales of wet yeast. Full recovery of higher input costs was consequently challenging in these markets,” reveals the financial review.
ABF said it intends to invest further in plant capacity in China to support market growth, with a new fresh yeast plant set to be built in Shandong province and dry yeast capacity at its Xinjiang facility is being expanded.
Shirley expects ABF’s overall growth in the coming year to be informed by the higher sugar prices globally, with the sugar producer benefiting hugely form the tight sugar supply in H1.
“The [sugar] group performed very well this year,” reports ABF, “with revenue ahead by 10%, operating profit up 31% and an increase in margin to 14.8%. The company notes that the growth was achieved on the back of a significant increase in Chinese beet sugar production, an improvement in Iberia and the benefit of strong world prices.
“However, it was affected by weather-related poor harvests in South Africa, southern China and the UK,” added ABF.