Improved performance from sugar delivers boost for Associated British Foods

The British Sugar factory in Bury St Edmunds.

The British Sugar factory in Bury St Edmunds. - Credit: Su Anderson

British Sugar and Primark owner Association British Foods (ABF) has reported a 4% increase in first half pre-tax profits to £466million, despite a 2% dip in revenues to £6.117billion.

ABF said that, stripping out currency movements, revenues for the 24 weeks to February 27 were 2% up compared with the corresponding period a year ago, with group operating profits 3% higher in total at £486m and 5% up on a common currency basis.

Total revenue across the group’s sugar division, which besides UK beet processor British Sugar also includes businesses in Spain, Africa and China, was 9% down on last year’s first half at £843m.

However, excluding currency movements, this represented an improvement of 3%, and the division recorded an operating profit of £6m compared with a loss of £3m for last year’s first half.

“A tightening of EU and Chinese stock levels resulted in a strengthening of domestic prices in those markets, but world prices remain low,” said ABF.

“With most of British Sugar’s contracts for the current year already agreed, there will be no material impact on its profit from the improvement in pricing until next year.”

Following last year’s record UK sugar production of 1.45m tonnes, a reduction in the area contracted for beet cultivation and a return of yields to more typical levels resulted in production this year falling to just short of 1m tonnes.

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ABF said that operating performances remained strong at all its UK sites, with this year’s campaign being completed successfully in February, although the benefit of a reduction in beet costs was more than offset by higher overheads resulting from the lower volumes and weakness in the value of the euro.

“This reduced the half year operating result and we also expect the result for the full year to be lower than last year,” ABF said.

It added that operating results had also improved in Spain and China, and investment in a new refinery in Zambia was “progressing well”.

ABF also confirmed that an anaerobic digestion plant for the production of biogas, which is currently under construction at its Bury St Edmunds sugar factory site, will be commissioned later this year.

“This facility will have the capacity to use 100,000 tonnes of pressed sugar beet pulp as a feedstock and will generate five megawatts of electricity for export to the grid,” the group said.

“Importantly, this will reduce the energy consumed on site, by eliminating both the need to dry pulp and the transportation cost of removing it, and will be a major contributor to further cost reduction.”

At Primark, revenues grew by 7% on a common currency basis to £2.667bn although operating profit dipped by 1% to £313m, with like-for-like sales broadly flat and demand affected by warm winter across Europe.

Elsewhere in group, operating profit at its grocery division, which includes brands such as Twinings, Ovaltine and Kingsmill, grew by 2% on a common currency basis to £130m, despite a 1% dip in revenues to £1.52billion.

Revenues in the agriculture division fell by 15% to £491m, driven by soft commodity prices and lower volumes in its UK animal feed business, AB Connect, although operating profit fell by only 8% to £22m, with “excellent” trading at nutrition technology business AB Vista driving an improvement in margins.

And in the ingredients division, revenues of £596m represented growth of 4% on a common currency basis and operating profits surged by 54% to £40m, with a strong performance in America and more limited growth in Europe.

Group chief executive George Weston said: “These results demonstrate underlying progress for all of our businesses in the period despite currency.

“Good buying and selling space expansion continued at Primark, cost reduction and performance improvements contributed to a better result at Sugar, profits were well ahead at Ingredients, and profit margins improved at Grocery and Agriculture.”