ABF recoups ‘lost volume’ for Kingsmill

Sugar
ABF's sugar arm weakened and profitability hit
  (Photo:  )

Associated British Foods (ABF) has claimed that “lost volume” following Tesco’s de-listing of Kingsmill sliced last month has “been replaced elsewhere”. 

The company’s interim results for the 24 weeks ended 28 February revealed weak results in both its bread and sugar businesses, as revenue in the first half increased by just 1% to £6.25bn and pre-tax profit fell by 51% to £213m.

Revenue in the food businesses was lower than last year due to food commodity price deflation, particularly in sugar.

Bakery

George Weston, chief executive, said the UK bakery market remained “intensely competitive”, impacting on the profits of Allied Bakeries, owner of the Kingsmill brand, adding: “The profitability of Allied Bakeries reduced as a result.” He blamed over-capacity in the industry, reducing manufacturers’ margins and retailers seeking to prove their value credentials in shopping staples, such as bread.

However, the investment programme to modernise its bakeries is almost complete and it claims to be “winning new volume in the market”. Weston added: “Although we lost the contract to supply Tesco with Kingsmill bread after the half year, the lost volume has been replaced elsewhere.”

It is not known at this stage how it has replaced this substantial volume, which could be via own-label provision or listings elsewhere.

For more on the de-listing and bread market as a whole, listen to British Baker’s audio interview with Nick Law, operations director at Allied Bakeries.

Sugar

While there was a silver lining for its bread business, its sugar arm did not fare so well, though this was anticipated. Weston said: “As expected, profitability at AB Sugar was substantially lower as a result of much weaker euro-denominated EU sugar prices.”

The sugar business slumped to a £3m operating loss for the 24 weeks, which compares to a profit of £64m a year ago, while revenue fell 10% from £1.03bn to £928m. A slump was expected, though a “small profit” had been anticipated.

Outlook

Now, Charles Sinclair, chairman, said he expected a “modest decline” in adjusted earnings per share for the group for the full year, which he blamed on the strength of the British pound.

However, the agriculture, grocery, ingredients and retail divisions all saw a growth in earnings.

Weston rounded up: “This is a sound trading result, with significant progress made in operating profit by Primark, agriculture and ingredients, and further improvement in grocery’s margin. As expected, profitability at AB Sugar was substantially lower as a result of much weaker EU sugar prices.”

For the full year, grocery, ingredients and agriculture are expected to increase in operating profit, while low EU sugar prices and continued weakness in world sugar prices will result in “a large reduction” in profit from AB Sugar, in comparison to last year.

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