Associated British Foods- Reports Profit

Published online: Nov 12, 2007 A. Harmon
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Associated British Foods UK-based Associated British Foods plc (ABF) reports its operating profit rose 11 percent to £622 million as revenue rose 13 percent to £6.8 billion despite European Union sugar reforms and the weak U.S. dollar. The sugar division, which accounts for one third of sales, reported gains of 72 percent, up £1,151 million from £671 million in 2006. Adjusted operating profit for the sugar division increased 73 percent to £199 million, while margins also went up 0.2 percentage points to 17.3 percent. ABF attributed the growth to concentrating on sugar operations in China and Africa, after EU sugar reforms led the company to reduce its quota by 13.5 percent, or 193,000 tons. Chief Executive George Weston said the strong growth in revenue and operating profit reflects the recent major investment made by the group in capital expenditure and acquisitions. "The scale and range of our sugar activities are being transformed," he said. Associated British Foods is the second largest sugar producer in the world with some two thirds of volume originating from outside the regulated EU market and with limited exposure to the cyclical world sugar price. British Sugar is the sole processor of the UK sugarbeet crop and has a strong position in Poland. It has a successful cane sugar business in southern China and is investing in the beet sugar industry in the northeast. Chairman Martin Adamson says ABF's sugar activities have been transformed and now extend across nine countries in three continents. "Further investment has been authorized to upgrade and extend our facilities," he says. "In Europe we have improved processing efficiency positioning the business to meet the challenges of the revised EU sugar regime." There have been major developments by British Sugar in the emerging biofuel market. It has commissioned the UK's first bioethanol plant at Wissington, which uses sugarbeet as feedstock. In June it announced a major joint venture with BP and DuPont to build a world-scale plant in the UK and the design phase is on schedule. "We will continue to monitor developments in biofuels to identify opportunities where use of the group's capabilities would offer satisfactory long-term returns," Adamson says. "Although reform of the EU sugar regime will have a further large negative effect on profit for the coming year, we expect the shape of the regime to be resolved finally after a long period of uncertainty." Adamson says ABF is expanding its sugar business in the rapidly developing Chinese market. "The investment in the beet sugar industry represents an opportunity to use our considerable technological expertise to make dramatic improvements in agricultural yields and process efficiencies," he says. The investment in the Chinese beet sugar industry is centered in the northeast where the provinces have abundant, high quality arable land with ideal weather conditions to produce high sugar content in the beet. Government approval has recently been given for the creation of a joint venture, to be called BoTian, with the Hebei Tian Lu Sugar Group. ABF holds 51 percent of the joint venture. BoTian will initially operate four beet sugar factories in the northern provinces of China but negotiations are well advanced for a further five factories and more are being considered. "A significant increase in sugar production is planned," Adamson says. "There is a major opportunity to improve beet yields by the application of British Sugar's European beet sugar expertise through better agricultural practices and technology transfer. In addition refinery capacity will be increased through investment and efficiency improvements. Although the Allscott factory in Britain was closed at the end of the sugarbeet campaign, in light of the European Commission proposals announced in May to make further changes to the EU sugar regime reform, British Sugar decided to reconsider its plans for its operations in the UK, and specifically activities on the York site. "The future and extent of operations at the York site will be determined once this application for restructuring has been approved," Adamson says.