Sugar profits sweeten the deal for ABF as grocery and ingredients slump

By Nathan Gray

- Last updated on GMT

Related tags Associated british foods Profit

Sugar profits up for ABF as grocery and ingredients profits fall
A bumper performance in the sugar market has helped Associated British Foods balance sharply declining profits in its ingredients and grocery businesses.

Associated British Foods (ABF) posted a 17% rise in full-year profit after what it termed an ‘exceptional performance​’ in sugar operations.

However, the UK-listed firm revealed a significant slump in profits for its grocery (down 23%) and ingredients divisions (down 48%), despite total revenues growing by 11% to £12.3bn (€15.4bn).

AB Sugar reported a 25% jump in revenues from £2.13bn (€2.66bn) last year to £2.67bn (€3.34bn) for the year end to September.

The strong performance – driven by its European businesses and Illovo – also saw operating profit for ABFs sugar businesses rocket to £502m (€627m) – a growth of 62%.

George Weston, Chief Executive of ABF said the results signalled ‘exceptional performances’​ from the sugar business, despite growing uncertainty.

In its end of read operating review, ABF added: “The acquisition of Azucarera in Iberia has proved to be a very sound investment and has been a key contributor to the increased profitability over the last two years.” 

“The investment in capacity expansion across southern Africa is now delivering better returns for Illovo”

Ingredients slump

The success of sugar was dampened by poor profits in grocery and ingredients. ABF said revenues from its ingredients business was flat at £1.09bn (€1.36bn), however operating profits plummeted by 48% on the previous year, down to £32m (€39.9m) from £61m (€76.1m).

The ‘disappointing’ sharp lowering of profits reflects restructuring charges “and continuing operational challenges faced by AB Mauri,” said ABF.

“In the past year, AB Mauri made substantial progress in identifying the capabilities needed to deliver a more differentiated bakery ingredients proposition,”​ said the firm in its operating review. “It is now applying this understanding to each of its businesses, ensuring that it is adapted to meet their distinctive market requirements.”

Meanwhile, ABFs grocery business, which includes brands such as Kingsmill bread, Silver Spoon sugar and Twinings tea, saw revenues grow by 1% to £3.72bn (€4.64) but operating profits fell by 23% at £187m (€233m).

ABF said whilst brands including Twinings Ovaltine, Jordans Ryvita and Silver Spoon had achieved good growth this year, overall profit was held back by restructuring charges taken to lower the cost base, “and a difficult trading environment for George Weston Foods.”

Clive Black, head of research and retail analyst at Shore Capital noted that where trading profits for ingredients businesses have fallen significantly from £102m (€127m) two years ago, adding that “whilst the Australian grocery activities and the UK bakery operations, albeit from a more robust operational basis today, represent on going challenges for management.”

“From a low base we expect Ingredients to demonstrate some form of improvement in trading profits whilst Grocery should also deliver sound progress, recovering some of the lost ground from 2010/11A when nearly £250m of trading business was delivered.”

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