ABF posts growth ahead of end of year results

11-Sep-2016 - Last updated on 12-Sep-2016 at 14:14 GMT

Kingsmill owner ABF has announced a rise in operating profits

Kingsmill owner Associated British Foods’s (ABF’s) operating profits will be ahead of last year, according to its trading update released today (September 12).

It also announced a rise in its operating profits across its grocery and sugar divisions in its pre-close trading update for the 53 weeks to September 17.

The company cited the current exchange rate of the pound as having both positive and negative effects, including a benefit on its subsidiary British Sugar’s margins.

Grocery revenues would be marginally ahead of last year with a good underlying performance, while revenue and profit would benefit from favourable currency translation, it said.

ABF attributed the growth of its grocery division to a strong effort by its tea company Twining Ovaline, which featured a relaunch of its Twinings UK brand.

Low retail sugar prices

The success of Kingsmill Sandwich Thins led to the creation of a second production line, while a Silver Spoon saw pressure on its margins from low retail sugar prices.

ABF saw its sugar division strengthen thanks to an increase in world sugar prices and a reduction in EU stock levels, which benefited its Spanish business.

However, it would not see the results of this until the end of the next financial year, due to its sugar contracts being agreed on an annual basis.

All of ABF’s sugar businesses have delivered substantial cost reductions through a combination of continuous improvement, business transformation, capital expenditure and procurement activities, it claimed.

Selling its sugar cane business

ABF also announced it would be selling its sugar cane business in southern China to a consortium led by Nanning Sugar.

Meanwhile, ABF’s ingredients’ revenues were expected to be ahead of last year and operating profit would be ahead with a further improvement in margin.

AB Mauri – its bakery ingredients and yeast business – delivered a third year of significant profit recovery from all regions.

The company said a key driver of the development of the business had been the recent investment in the US and UK Centres of Excellence and the expansion of the bakery ingredients research and development centre in the Netherlands which will be completed next year.

Analysts comment – Connor Campbell of www.spreadex.com

“Suffering more than most this Monday, Associated British Foods fell more than 6% as it warned that, while it may be enjoying a weakened sterling at the moment, the pound’s low price could impact UK profit margins in the new financial year. This comment, combined with a the prospect of a 2% fall in full year sales from Primark, clearly upset investors, explaining their sharply negative reaction to Monday morning’s statement.”