Sugar's the sweet spot for ABF

Associated British Foods predicts a 2% increase in like-for-like sales, fuelled by its flourishing sugar beet business.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

The manufacturing giant, which produces everything from Kingsmill bread to Silver Spoon sugar, has released its pre-results trading update today. ‘All segments [are] delivering revenue growth,’ it says, and, ‘operating profit for the group will be ahead of last year’.

These aren’t cast iron results - the ‘pre-close trading update’ is a curious thing: a rough idea, rather than hard figures. Nevertheless, it’s a fairly good barometer of the health of the firm. And it looks like everything is just tickety boo. Good news for boss George Weston, who took the reins in 2005. ABF has been immersed in family rivalry with the Canadian arm of the business (owned by George's uncle, Galen), which has steadily outperformed the British arm.

Looking closer at the breakdown of the various divisions of ABF, the sugar division, (which accounts for about one fifth of turnover), is one of the best performers in the group. It’s a real turnaround from this time last year, when freezing weather caused UK crops to wither. This winter, the warmer temperatures have made sugar beet stocks in the UK and Spain grow like Jack’s beanstalk, and first-half production is up from 1 million tonnes to 1.3 million tonnes year-on-year.

At ABF’s mega-clothing chain Primark, sales are also up. Despite the financial doom and gloom, the lipstick effect (consumers buying small and pretty things to cheer themselves up) has helped turnover to rise by 2% (like-for-like). ‘We had a cracking Christmas,’ John Bason, ABF’s finance director, told the FT. ‘Shopping for clothes is an affordable pleasure. We had the right range and we stood by the consumer during the cotton price spike.’

Ah yes, cotton. Last year, the price soared, hitting ABF – and many other clothing manufacturers – hard. But reduced demand (as clothing makers diversified into different, more affordable materials) and increased production has helped to bring costs down. Cotton is now back to affordable levels: around half of its $2.27 per pound high from March 2011. However, elsewhere in the raw materials market, prices are still sky-high: corn oil, spices, molasses and yeast are the biggest culprits, eating into ABF’s margins and taking earnings for the food arm down to around £20m.

Full interim results will be announced on April 24. But the markets have already shown their disappointment in ABF’s modest, albeit steady, growth: shares are down 1.7% in early morning trading.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today