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Associated British Foods see profits fall

Clothing sales at Primark have helped cover up a sour set of results from Associated British Foods, which saw its sugar operations swing from £64 million profit to a £3 million loss.

The discount clothing retailer, which has been on an international expansion drive, pulled in a £322 million operating profit.

Pre-tax profits at ABF nevertheless fell to £213 million from £434 million in the six months to the end of February, on revenues of £6.25 billion, up from £6.21 billion.

Shares in the company fell 2.6 per cent in early trading after it also warned that it now expected a a “modest” decline in earnings per share as a result of a weak euro and downward pressure on food prices also eating into revenues at its agriculture and grocery operations. However, it said it would pay a dividend of 10p, up 3 per cent.

Europe is the world’s biggest producer of beet sugar, according to the European Commission, and the price has long been skewed by production quotas, a minimum sugar beet price and export controls. However, the controls, brought in in 2006 are set to expire in 2017 and prices are likely to fall further.

The global sugar price has been on a downward trajectory for most of this year and well below the industry’s break-even price, generally thought to be around 20 cents a pound. ABF’s British Sugar produced 1.32 million tonnes last year ramping up production ahead of those quotas lifting. In half-year results the company reported a £3 million loss on revenues of £928 million.
If sugar lends the results a sour note then Primark certainly made them easier to swallow. An unusually structured conglomerate, AB Foods’ businesses stretch from Primark to Ryvita, Silver Spoon sugar and Twinings tea.

Primark, which has been offsetting the company’s struggling sugar business for years, saw sales rise 12 per cent, with revenue up to £2.5 billion, while operating profit rose 8 per cent to £322 million. The low-cost fashion chain was boosted by the expansion of its retail space and strong trading in stores opened in the past 12 months, the company said.

The low-cost retailer has opened new stores all over Europe in the last year and its European expansion has proved highly successful. The new Berlin-Alexanderplatz, Paris, Stuttgart and Cologne outlets regularly feature in its top 20 stores by annualised sales. “Like-for-like sales over the important Christmas period were strong,” it said.

Mr Weston, group chief executive, said: “As expected, profitability at AB Sugar was substantially lower as a result of much weaker EU sugar prices. Primark’s performance was driven by significant expansion of selling space and superior trading by the stores opened in the last 12 months and plans for its entry into the north-east of the US are well advanced.”

Meanwhile, ABF’s troubled rival Tate & Lyle has announced it is all but abandoning its bulk sweeteners business in Europe, pulling out of a joint venture with American company ADM. It also said it would consolidate production of all its Splenda sucralose at a facility in Alabama and close a Singapore facility in the spring of 2016.

The price of sweeteners is linked to the price of sugar as cheap sugar reduces demand for artificial substitutes. Tate & Lyle said the restructure would mean a £185 million charge but a profit on disposal of around £60 million.

The company also said it would recommend an unchanged final dividend for the year ended March 2015 that would make the total for the year 28 pence per share, representing an increase of 1.4 per cent. The company plans to recommend a similar dividend payment for the current year as well.

Source: - 21 April 2015