Concerns over UK sugar sour ABF shares

Posted by Josette Dunn on 21st January 2011

* Freeze, then thaw, in UK could hit UK sugar crop
* ABF says UK sugar problems may “moderate” profit growth this year
* UK grocery sales up 9%; weaker performance in Australia

Concerns over the quality of Associated British Foods’ (ABF) UK sugar crop soured the food-to-retail group’s shares yesterday.ABF, which owns British Sugar, said the cold weather in the UK before Christmas and the more milder temperatures since the New Year could effect the sugar beet still to be processed.

“In the UK, sugar beet yields at the beginning of the campaign were in line with expectations. However, the very recent sharp rise in temperature following the prolonged period of extremely cold weather before Christmas is having an adverse effect on the quality of sugar beet still to be processed,” ABF said in its trading update for the 16 weeks to 8 January.

“Seventy-five per cent of the crop has been processed but the effect on the remainder is still to be determined and a further update will be provided in the pre close period trading update on 28 February.”

ABF saw profits rise 26% in its last financial year, a performance it today described as a “step-change in the group’s profitability”. The company said it expects “further growth” this year but warned the weather-related problems within its UK sugar division would “moderate” that growth.

The concerns over ABF’s UK sugar business overshadowed a trading update that said group-wide sales were up 10%, in part boosted by the strength of the South African rand and the Australian dollar against sterling.

ABF’s grocery sales climbed 9% year-on-year and the Patak’s, Blue Dragon and Ryvita owner said its UK grocery divisions had enjoyed “good growth”. Rising volumes and improved market share also drove a “good result” at ABF’s Allied Bakeries arm, the company said.

However, falling prices, driven by promotions across the market and increased competition in bread and in meat, meant the “trading performance” of ABF’s George Weston Foods unit in Australia was “below” last year.

Looking at its grocery business as a whole, ABF said it had moved to increase selling prices to offset the impact of wheat, corn oil and spice costs. Nevertheless, the company warned: “Delays in securing these increases will adversely affect margins and the impact of continued rises in commodity costs will need to be carefully managed.”

Shares in ABF were down 2.2% at 1090p at 09:38 GMT this morning.

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