Associated British Foods (ABF) yesterday blamed a drop in operating profits of 21 per cent to £413m (€612.9m) before on higher energy costs and instability arising from EU sugar reforms.
An increase in group sales of seven per cent to £6bn (€8.9m) were offset by the £34m (€50.5m) impact of EU sugar reform and a £64m (€95m) hike in energy costs. The EU reformed its sugar regime last November in order to remove support for manufacturers and artificial high prices.
"We are now well into the transition from the old sugar regime into the new and there was a big impact on prices as producers positioned themselves for the new structure. The combination of lower prices and higher energy costs resulted in sharply reduced European profits" said Martin Adamson, chairman of ABF.
However, he said that the company had responded quickly to changes in the market having purchased a 51 per cent stake in South African based company Illovo Sugar. The acquisition will allow ABF to import sugar into the EU, taking advantage of the special tariff for the Least Developed Countries (LDC).
"The consequence of this reshaping is that, after the transition to the new EU regime, we will have a sustainable base of production in the EU which, together with LDC sales into the EU, will take our potential scale in Europe to two million tones", said Adamson.
The company reported disappointing sales at Allied Bakeries with declines in both Kingsmill and own label brands. The new management team plans to make "substantial" investment in the brand to boost sales, however no profit is expected within the next year.
In the UK crisp bread market the company's Ryvita brand outperformed all other competitors, strengthening its position as the leading product. International hot beverages Twinnings and Ovaltine have continued to grow well, with green tea sales ahead of last year in line with growing health trends, the company reported.
Despite the effects of sugar reform impacting Silver Spoon, Billingtons unrefined cane sugars and low calorie 'light' sugars grew strongly.
Westmill delivered strong growth maintaining its position as the leading supplier to Britain's ethnic food market. This was helped by the acquisition of the Rajah, Green Dragon and Lotus brands from Heinz, the company reported.
AB Mauri, the yeast and bakery company acquired by ABF in 2004 has continued its strong performance, contributing heavily to increased ingredients revenues and profits of 25 per cent and 26 per cent respectively.