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ABF blames profit drop on sugar shake-up

By James Knowles , 08-Nov-2006

Associated British Foods (ABF) yesterday blamed a 21 per cent drop in operating profit on European sugar industry reform and significantly higher energy costs.

The European Union reformed its sugar regime last November in order to remove support for manufacturers and artificial high prices.

As a result ABF had to restructure its British operations, resulting in a one-off 97m charge against operations. When added together with high energy costs, the charge contributed to a 21 per cent drop in operating profit to 419m, said George Weston, ABF's chief executive.

 

"This year's performance demonstrates the resilience of a steep increase in energy costs and the profit impact of EU sugar regime reform," he stated. "We have taken major steps in the development of our businesses this year. In particular, British Sugar and Primark have emerged stronger and better positioned."

 

He said company subsidiary British Sugar was quick to respond to the reforms, having purchased a 51 per cent share in Illovo Sugar, which is based in southern Africa. Illovo will allow the company to take advantage of a special reduced EU tarrif on sugar for under developed countries.

 

ABF's total production capacity will be taken to 4m tonnes, one third of which will be in Europe and two-thirds in Africa and Asia.

 

Meanwhile sales at the company's Allied Bakeries (AB) unit has continued to be unsatisfactory with declines in both Kingsmill and own-label products, ABF reported. The new management team plans to make "substantial" investments in the brand in a bid to boost sales. No profit is expected within the next year from the unit, the company reported.

 

In the UK crisp bread market the company's Ryvita brand outperformed all other competitors, strengthening its position as the leading product. International hot beverages Twinnings and Ovaltine have continued to grow well, with green tea sales ahead of last year in line with growing health trends, the company reported.

 

Despite the new sugar regime impacting Silver Spoon, Billingtons unrefined cane sugars and low calorie 'light' sugars grew strongly.

 

Westmill delivered strong growth maintaining its position as the leading supplier to Britain's ethnic food market. This was helped by the acquisition of the Rajah, Green Dragon and Lotus brands from Heinz, the compnay reported.

 

ABF's international yeast and bakery ingredients business AB Mauri contributed towards the 25 per cent increase in revenue to 729m and a 26 per cent increase in profit to 82m.

 

Overall group sales increased by seven per cent, with adjusted profit increasing by just one per cent.

 

The group's Primark clothing chain delivered a strong performance with 3 per cent like-for-like growth. This was due largely to a roll out of store openings, increasing retail selling space by 70 per cent, the company said.

 

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