AB Foods: year profit up, costs pressure margins

London / UK. (abf) Associated British Foods PLC, the Kingsmill and Hovis bread maker said annual profit climbed 23 percent, led by its African sugar and Primark clothing units. Net income rose to 369 million GBP in the year ended September 15, from 301 million GBP a year earlier, the London-based company said. Revenue rose 13 percent to 6,8 billion GBP. Highlights:

• Group revenue up 13 percent to 6,8 billion GBP
• Adjusted operating profit up eleven percent to 622 million GBP
• Adjusted profit before tax up ten percent to 613 million GBP
• Adjusted earnings per share up four percent to 0,529 GBP
• Dividends per share up four percent to 0,195 GBP
• Net investment in capital expenditure and acquisitions of 489 million GBP
• Net debt of 311 million GBP
• Operating profit up 28 percent to 556 million GBP, profit before tax up 21 percent to 508 million GBP and basic earnings per share up 23 percent to 0,467 GBP.

The shares slipped after AB Foods said sugar production quotas in Europe and wheat prices that doubled over the summer will hold back profit growth this fiscal year. Expansion in clothing will also slow after the company converted former Littlewoods stores to the Primark format, increasing selling space and the chain´s revenue by 37 percent.

«The challenge for us is to make progress despite the higher costs», Chief Executive Officer George Weston says in a statement. «We have to recover the increases. Our track record is pretty good».

Sugar and Primark generated about 60 percent of profit in the fiscal year, Finance Director John Bason has said. AB Foods, started as a baker in 1935, also has an ingredients division. Its sugar activities are the main part of an agribusiness division, whose products also include animal feed. The company invested 489 million pounds in its existing business, including 200 million pounds on new Primark stores and factories.

The sugar maker took control of Illovo in 2006 to benefit from duty-free access to the European Union market as of 2009 for producers outside the bloc. The EU cut guaranteed prices paid for sugar to stem oversupply and has set out plans to lower production quotas further. Associated British Foods now makes two-thirds of its sugar in Africa and China.

The company in September forecast lower profit at its grocery unit, citing bakery losses and currency movements. Associated British Foods said then it had raised the price of Kingsmill and would have to do so again after wheat prices climbed, making flour more expensive. Premier said in September the cost of a loaf of Hovis had risen by 8 pence in two months.

Attention: A detailed description of the results Associated British Foods PLC has printed as PDF file (28 pages | 175KB).