East is still East says Associated British Foods

It is still cheaper to set up shop in Poland and ship products across Europe than build a new factory in the UK, according to Associated British Foods (ABF), which has just opened a new plant in Poland to make ethnic foods under the Blue Dragon brand. ABF, which recently closed two factories in Wales in order to transfer production to its Polish site, said the reduced operational costs more than offset the transport costs of shipping products back to the UK.

The move follows Cadbury's decision to close its chocolate factory in Keynsham and open a new site in Poland, which has been heavily criticised by unions on environmental grounds.

While the differential between wages and building costs in the UK and central and eastern Europe was closing, it was still significant, said an ABF spokesman. The move was part of a restructure to integrate Blue Dragon with recent acquisition Patak's to form a new World Foods division, he added.

While ABF did not provide a breakdown of the financial performance at Allied Bakeries in its interim results last month, analysts estimated that losses had been substantially reduced in the first half due to input cost recovery, higher volumes following the relaunch of Kingsmill, and more efficiency.

Although profits in the sugar division fell due to changes in the EU sugar regime, sugar would be a big growth driver in future as ABF continued to invest in production outside Europe, predicted broker Panmure Gordon. "ABF continues to invest in Chinese sugar with the construction of a new cane mill and the acquisition of a further seven beet factories. We see significant growth potential over the next three years."

Group pre-tax profit edged up 5% to £282M on sales up 15% to £3.7bn in the 24 weeks to March 1.