Associated British Foods Plc (ABF.L), Thursday, in its interim management statement for the first quarter, said Group revenue from continuing operations for the 16 weeks to January 2 increased 17% from the previous year and was up 11% at constant exchange rates. The company attributed the increase in revenues to weakness of Sterling, especially against euro and Australian dollar, and said it expects good revenue growth and a significant increase in operating profit in fiscal 2010.
The company operates through four business segments: Sugar & Agriculture, Retail, Grocery and Ingredients. For the 16-week period, revenues from Sugar business was 68% ahead of the prior year. Sugar revenues from continuing businesses, excluding results for Azucarera acquired in April 2009, grew 23% from the year earlier. The company has completed the sale of Polish sugar business on November 25, and has excluded it from the results of continuing businesses. ABF estimates the UK sugar business to produce some 1.3 million tonnes, and said that profit for the period benefited from higher volumes, better factory efficiencies and lower energy costs together with a strengthening of the euro. The company noted that in Spain, sugar sales volumes were ahead of expectations and the new refinery at Cadiz is operating well. However, profitability at Illovo was lower as a result of the weakening of currencies outside South Africa, the strength of the rand on South African exports as well as due to an extremely wet weather at the end of the season. During the period, Malawi and Mozambique experienced more favorable conditions for sugar production and achieved good factory performances. Regarding the company's sugar business in China, local currency sugar prices have increased substantially and the company is experiencing sugar prices at record levels. However, the current year production is expected to be lower than last year, as a result of drought on cane yields in the south and a smaller beet crop in the north, but ABF expects a significant improvement year-on-year.
Agriculture business revenues increased 4% from a year ago, with higher UK feed revenues in all sectors, while lower prices affected sugar beet feed. The company noted that growth in its specialty feeds exceeded expectations and also reported encouraging enzyme sales. In the Grocery segment, revenue was 4% ahead of last year and showed much improvement in underlying profit margins. The company noted that its Twinings and Ovaltine brands achieved excellent revenue growth. In its US Grocery business, the company said, Mazola volumes were higher than last year and margins improved from the same period a year ago. In Australia, baking profitability increased. The company has closed the abattoir in Queensland and acquired KR Castlemaine business, and anticipates providing GBP 10 million for the cost of exiting this business and will be charged as a loss on closure of a business. Ingredients segment revenues grew 11% and was up 5% at constant currency. According to the company, it traded well in yeast and bakery ingredients business, with a strong sales performance from the Americas. Ingredients business profitability benefited from better lactose prices in the specialty proteins business and from lower overhead costs.
In the Retail segment, sales for the first quarter improved 19% from the previous year, helped by increase in retail selling space and very good like-for-like sales growth. Gross margin in the segment has reduced due to higher cost of goods sourced in US dollars. The company noted that as at January 2, 196 stores were trading with 6.1 million square feet of selling space and added that it has opened 5 new stores since last year.
"There remains some uncertainty over the pace of economic recovery and the outlook for the UK consumer. However, we expect good revenue growth and a significant increase in operating profit this year with the benefit of returns from our recent long-term investments and restructuring together with improvement in our Chinese and US businesses. Net financing costs will be higher but we are confident of good progress in earnings for the full year," the company said.
ABF.L is currently trading at 881 pence, up 21.5 pence or 2.5%, on a volume of 885 thousand shares. For the last one year, the shares traded in a range of 603 pence-882.5 pence on the London Stock Exchange.
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