Weak sterling and high sugar prices drive 19% ABF revenue hike

Allied Bakeries owner Associated British Foods (ABF) has reported 19% year-on-year growth in revenue to £7.3bn in the first half of its financial year.

Excluding the benefit of the devaluation of sterling on its overseas results, underlying growth was 7% while adjusted operating profit rose 23%.

“With some two-thirds of the group’s revenues and operating profit generated outside the UK, the weakness of sterling has been very favourable on the translation of these overseas results,” stated the business.

The key driver of the increase in profit was ABF’s sugar business, which had benefited from higher sugar prices and savings generated by performance improvement. The company said margin progress and profit hikes had also been achieved in its grocery divisions, with growth from Twinings, Ovaltine and margin recovery at George Weston Foods in Australia.

Kingsmill revamp

As previously reported by British Baker, ABF said Allied Bakeries had achieved higher sales volumes in the first half of the year, with a new pack design for Kingsmill “well received” by customers and consumers. The company added, however, that the market remains competitive and that inflationary cost pressures had hit margins.

ABF said work had commenced on the upgrade of the Speedibake bakery in Wakefield as the business prepared to increase capacity with a new doughnut line. 

It also reported that the rate of decline in Ryvita crispbread volumes had slowed, and that the brand had benefited from the launch of portion packs and variants including apple & cinnamon and cracked black pepper.

Sales from ABF’s Ingredients division were up 3% year on year, with operating profit up 27% following further recovery in yeast and bakery ingredients. Most of the company’s ingredients activity is outside the UK, and the results were helped by their translation into sterling.

New bakery ingredient solutions

Ingredients trading performance in Europe was in line with last year, reported ABF. It said a “notable success” had been the recently opened UK Technical Centre, which enables “the development of new bakery ingredient solutions and provides technical support and training to customers”.

A major contributor to success was AB Enzymes, where sales of feed enzymes were particularly strong and growth was achieved in the bakery, food and technical markets, reported the company.

‘Excellent growth’

“The growth in earnings achieved in the first half has been excellent,” said ABF chairman Charles Sinclair, adding that he expected the underlying revenue momentum in all its businesses to continue in the second half. 

“However, at current exchange rates, profit growth in the second half will be tempered primarily by a smaller translation benefit and the full effect of the devaluation of sterling against the US dollar,” he added. “Our outlook for the group’s full-year results has improved and we now expect to report good growth in adjusted operating profit and adjusted earnings per share.”

Sinclair added that ABF has had a dedicated team working for “many months” to determine the consequences of Brexit for the business.

“Our businesses are now working to seize the opportunities and mitigate any risks,” he added. “We are actively engaging with a number of government departments to ensure that these opportunities and risks are recognised.”

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