AB Agri posts a 20% lift in full year profit

Associated British Foods’ Agriculture division, AB Agri, has reported a 20% increase in profitability from 8% lower revenues in its latest full year of trading. Despite commodity deflation, the business says its enzyme business made a key contribution to the higher profitability.

The division reports an operating profit of £60 million on sales of £1.21 billion in the year ended September 12th 2015, compared to £50m and £1.31bn in the previous period, with strong performances across all businesses. The ABF group saw its operating profit fall 6% to £1.1bn on revenues 1% lower at £12.8bn.

AB Agri says its UK feed volumes held up well, despite the pressures on dairy incomes with low milk prices. AB Connect, comprising the KW and Trident alternative and co-product ruminant feed products, benefited from herd managers seeking a cost effective way to maintain or improve milk yields and quality. The ABN monogastric compound feed business saw poultry feed volumes recover following a difficult period, while pig feed volumes were slightly ahead of last year.

The Speciality Nutrition business gained from last year’s expansion and modernisation of the Premier Nutrition premix plant at Rugeley. This enabled it to meet higher domestic demand as well as further extend its EU operations into the important Spanish pig market.

AB Vista, the group’s international feed micro ingredients operation, saw continued strong growth in both sales and profit, with the Quantum Blue phytase enzyme product achieving significant market share gains.  It is confident of further growth opportunities through new applications and geographies, supported by the planned expansion of its fermentation production plant in Finland.

There was a strong result for the AB Agri China feed operation, helped by good procurement and a favourable product mix, notes the company. The two new feed mills commissioned in China recently are both performing well - Zhenlai is delivering substantial cost savings to its major customer, while the Rudong plant, which supplies feed exclusively to a major international processor, is already performing to plan.

Frontier Agriculture, the joint venture arable marketing business equally held by AB Agri and Cargill, traded at similar levels to the last financial year. The below average protein levels in UK wheat from harvest 2014 added complexity to grain trading operations and increased demand for quality wheat imports.

AB Agri reports that it has now gained accreditation for the energy management system now deployed across all of its UK manufacturing sites and major offices. This response to the UK government’s commitment to reducing the country’s greenhouse gas emissions will result in the better measurement and management of energy use in the business, and will increasingly inform strategic investment decisions.

As forecast, ABF’s Sugar Division, which includes British Sugar among its overseas refining interests, saw sharp reductions in profitability at £43m (£189m) and revenues at £1.82bn (2.08bn) as Europeansugar values slumped.

The UK 2015/16 beet campaign is making good progress. With a 25% reduction in contracted plantings and more average beet yields after last year’s high, UK sugar production is expected to be around 1.0 million tonnes (1.45m tonnes in 2014). This will help reduce the stock overhanging the market. British Sugar negotiated a 20% lower delivered beet price for the current campaign, and a further “substantial” reduction for 2016/17.

The Vivergo Fuels wheat to bioethanol business sustained an operating loss in line with low product prices. In May, ABF acquired BP’s 47% stake increasing its interest in Vivergo to 94%. ”In recent years the European market for bioethanol has been weaker than expected and we foresee that we may need to run this plant at a small loss in the short term. However, as the percentage of ethanol inclusion in gasoline increases in line with EU mandated targets by 2020, this market is forecast to move from surplus to deficit which we expect to lead to a price increase,” says ABF chief executive George Weston.

“We took the opportunity to increase our ownership of Vivergo Fuels this year. This is a well-invested, cost-competitive asset, with a promising longer-term outlook. As the existing supplier of grain to the business through Frontier Agriculture and as the seller of its distillers’ grains through AB Connect, we are well placed to maximise the returns from this business.

“AB Agri delivered another great result and deserves credit for its consistently strong performance over the last five years driven by innovation, diversification and geographic expansion,” Mr Weston conclude