Monday, Associated British Foods Plc (ABF.L), in its pre-close trading statement, reported higher adjusted operating profit for the second half of fiscal 2009, reflecting strong trading since the half year. The British multinational food, ingredients and retail group added that it expects 'some progress' in adjusted earnings for the full year, although the interest charge will be substantially higher.
The company is scheduled to announce its full year, 2009 results on November 3, 2009.
In the Sugar & Agriculture segment, the company expects that sugar profit will be substantially ahead of last year, helped by growth in the European Union, or EU, and Illovo which more than offset losses in China.
In the EU, UK and Polish businesses delivered good results with solid operating performances, robust sales, the benefit of a strong euro and favorable energy costs. The company acquired Iberia-based sugar producer Azucarsera Ebro in April this year, while in August, it reached agreement to sell Polish sugar business, the country's fourth largest producer, to Pfeifer & Langen Polska S.A. Completion of the deal, subjected to regulatory approval, is expected in late 2009.
Boosted by strong sales and currency translation gains for the operations outside South Africa, and by recovery of the world sugar price, Illovo is projected to deliver an excellent operating result for the year. However, sugar production was lower than expected, particularly in South Africa. Associated British Foods noted that Illovo is expected to raise rand 3 billion of additional capital successfully, through a rights issue with proceeds being received in late September. The Zambian business has completed a US$50 million rights issue.
Meanwhile, Chinese businesses had a very difficult year with the significant sugar stock overhang from 2007or 2008 depressing prices during the first half of the year. The region's operating costs were impacted by a reduced crop in the North, with exceptionally low sugar content. The company noted that sugar prices have rallied in the second half driven by government purchases, a smaller crop this year and higher world sugar prices.
In China, consumption exceeded production by some 1.7 million tonnes in the year. Looking forward, the company said the cane sugar business would be strengthened by the commissioning of the new mill at Jinchengjiang and by the beet sugar business focusing on the development of agriculture and production in seven of its 12 factories.
Associated British Foods added that agriculture continued to perform strongly, well above expectations, despite lower commodity prices. Good market experience, trading and nutritional expertise and excellent performances from new business streams resulted in growth in the UK and the international operations.
In the Grocery segment, the company reported strong revenue and operating profit growth in the second half, boosted by progress in Allied Bakeries, Twinings Ovaltine and the company's business in Australia. For the second half, performance at ACH in the US has steadily improved, with higher Mazola volumes and the full utilization of the high priced corn oil contracts that depressed first half profit. The closure of ACH's commodity oil processing facilities are now expected to be in Spring 2010.
In Australia, grocery profit for the year was ahead although margin pressure was a feature in the baking and meat businesses. In UK, a strong performance from Allied Bakeries resulted in further progress in the business, with increased margins from further improvements in operations.
Ingredients businesses continued to benefit from the weakness of sterling against the US dollar and the euro. AB Mauri's yeast and bakery ingredients business performed well, with good progress made in yeast in South America and in technical ingredients in the Americas, despite tough trading conditions in India. The company said it recently ceased production at its small yeast facility in Ireland and transferred the operation to Hull in the UK, and also completed the sale of the Gilde Bakery Ingredients business in Iberia and manufacturing plant in Portugal in accordance with the agreement reached with the EU Commission.
Meanwhile, ABF Ingredients had a difficult year with lower sales volumes and pressure on margins as some commodity prices fell.
In Retail, the company's sales and profit at Primark are projected to be higher than last year. Like-for-like sales growth of 7% is expected for the full year driven by a very strong performance in the UK. Meanwhile, the company expects lower operating profit margin, impacted by the increased fixed overhead of the new UK distribution centre, together with lower gross margins as a result of the effect of sterling weakness on the cost of goods priced in US dollars.
Further, Associated British Foods said its expenditure on acquisitions in the year, including debt assumed, will amount to some GBP 370 million, primarily comprising the Iberian sugar business, Azucarera Ebro, and a sugar cane farm in Zambia. Proceeds from the disposal of a number of small businesses amounted to GBP 14 million.
The company said it received advanced consideration of around GBP 120 million in respect of the sale of the Polish sugar business which will complete later this year subject to regulatory clearance. The company's net debt at the year end is now expected to be close to the level at the half year. The rights issue announced by Illovo in South Africa will complete early in the the new financial year, which would result in a further reduction in the company's net debt of some GBP 100 million.
ABF.L is currently trading at 841.00 pence, up 29.00 pence or 3.57%, on a volume of 1.2 million shares.
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