LONDON — Associated British Foods P.L.C. said it expects "good growth" in first-half fiscal 2008 profit. The announcement was made Feb. 25 as part of the company’s pre-close period trading update.
A.B.F. said it experienced strong growth in agriculture, grocery and Primark stores, which more than offset an expected decline in the company’s sugar business.
"During the half year we will have spent some £120 million on acquisitions, primarily on certain of the European assets of Glide Bakery Ingredients for AB Mauri and on the beet sugar factories in northeast China," A.B.F. said. "At the half year the group’s net debt will reflect these investments, the higher working capital in sugar expected at this time of year and higher working capital elsewhere resulting from the effect of substantially higher commodity prices on stocks."
In the company’s sugar business, A.B.F. said profit in the United Kingdom and Poland are expected to be lower than a year ago due to lingering effects of the E.U. sugar regime changes. Profits in the United Kingdom also were adversely affected by higher energy costs and a smaller crop of 1.05 million tonnes.
Meanwhile, A.B.F. said its agriculture unit performed "extremely well."
"Strong trading in the markets for cereals, nitrogen-based fertilizers and other crop inputs led to an excellent result from Frontier," A.B.F. said. "Further investment enabled KW Trident to benefit from high demand for sugar beet feed and co-products from the cereal, distilling and brewing sectors. However, in China, recovery of the dramatic increase in the cost of raw materials and energy has proved challenging."
A.B.F. said its grocery profits will be much higher than last year, primarily as a result of a substantial improvement by Allied Bakeries, but also due to strong performances from Twinings Ovaltine and George Weston Foods in Australia.
"The U.K. bakery business benefited from the continued improvement in operational performance, higher volumes and achievement of price increases that recovered the higher wheat costs," A.B.F. said. "In Australia, the results also reflect improvements in bakery performance and successful recovery of higher wheat costs. Twinings Ovaltine again delivered strong sales growth, particularly from tea in the U.K. and U.S. and from Ovaltine in Asia and developing export markets.
"As expected, profit at ACH has been impacted by sharp increases, to unprecedented levels, in the cost of corn, soybean and canola oils. Price increases have now been achieved with further initiatives planned. The combination of Patak’s and Blue Dragon is on plan, trading is encouraging and the new Blue Dragon factory in Poland is being commissioned. Grocery profit will include a charge for the closure of the existing factories in Wales. Westmill profit will be ahead of last year."
Commenting on its ingredients business, A.B.F. said it expects strong sales gains, but noted that margins will be adversely affected by higher input costs, specifically in its protein business.
"Growth in enzymes has been achieved by a combination of increased sales resource with a wider geographical reach and the introduction of new products," A.B.F. said. "In yeast, the Brazilian business benefited from lower operating and molasses costs and the expansion of the Argentinean plant has created one of the lowest cost plants in the world. Increased demand has led to further investment in additional yeast and yeast extract capacity in north east China and enzyme capacity in Finland. We sold our small U.K.-based emulsifier business at the beginning of February with completion subject to competition clearance."