A third quarter trading update from Associated British Foods (ABF) simply reports that the Group’s Agriculture businesses -
-maintained the “strong momentum” of last year. But there is a further writedown in the Vivergo Fuels renewable fuel investment.
Overall ABF Group revenues for the 40 weeks ended 20 June 2015 were 2% ahead of the same period last year at constant currency values, or level at actual exchange rates.
The Sugar division confirms that the 2014/15 UK beet campaign produced 1.45 million tonnes of sugar, benefiting from a large crop, excellent factory performances and good extraction rates. However, plantings for the 2015/16 season fell by more than 20%, pointing to sugar production of around 1.0 million tonnes. This will help the company move some of its sugar stockpile that is depressing sugar values. The company notes that quota stocks are now reducing across the EU, and with lower production forecasts generally across the region, further reductions are expected next year. The price agreements with the NFU will see a 20% fall in delivered beet costs for the 2015/16 campaign, and a further fall recently negotiated for 2016/17.
In May, ABF acquired the majority interest in Vivergo Fuels, the Humberside wheat to bioethanol factory, through buying the BP 47% stake. It now holds 94%, with DuPont owning the balance. The BP deal has led to an exceptional, non-cash charge of £75 million – ABF wrote off £95m earlier this year (ATN February 6th).
ABF says the current weakness of the bioethanol market means it may need to “run the plant at a small loss in the short term”. But it is confident that the increase in fuel inclusion levels set by the EU for the 2020 target will move the European ethanol market from surplus to deficit, thereby lifting prices over time.
“By employing a more flexible business model, Vivergo will be better able to limit the extent of any operating losses,” says the ABF statement. “As an existing supplier of grain to the business through Frontier Agriculture and as the seller of distillers’ grains through AB Connect, we are well placed to maximise the returns from this business. The opportunity to increase our ownership of a well-invested, cost-competitive asset on attractive terms, with a much more promising medium to long-term outlook, was therefore persuasive.”