Deflation impacts AB Agri’s HI revenues

AB Agri, a division of Associated British Foods, has reported a 4% drop in profitability on 15% lower revenues for the first half of its financial year, in line with commodity price deflation. It is investing in Anaerobic Digestion facilities at two of its UK businesses.

 

The company made an operating profit of £22 million on sales of £491m in the six months to February 27th 2016, compared to £23m and £577m in H1 of the previous year.

Revenues fell in line with soft commodity prices, as well as the lower feed volumes in the period for the AB Connect feed business comprising compounds, straights and co-product feed materials. Demand for ruminant feeds fell during the mild winter, although the company’s speciality feed volumes were higher than in the previous period, as the business increased its share of the UK market, more than offsetting a fall in EU export volumes.

AB Connect is developing an anaerobic digestion (AD) products and services business, which it says will aim to improve the efficiency of this growing sector. It can leverage its expertise in feeding ruminant animals across to the ‘concrete cows’ of AD systems. In addition the company is developing an anaerobic digestion plant at its Sherburn-in-Elmet feed mill site in Yorkshire, using low-grade food waste as a feedstock. The biogas project will help improve the company’s sustainability and reduce its carbon footprint.

Excellent trading at the AB Vista feed microingredients business helped to drive further margin improvement for AB Agri as a whole. Good progress was achieved for AB Vista’s feed enzymes in Asia, Europe and the Middle East. International sales of the phytase enzyme Quantum Blue grew further, as did Econase XT in the Americas and in south east Asia.

AB Agri’s Chinese feed operations encountered weak market conditions, which were somewhat offset by its improved purchasing and pricing. The business has also had some success in its targeting of larger livestock units. It has won a number of new feed supply contracts, as the Chinese industry restructures from its largely traditional backyard basis to fewer but larger, more professional enterprises demanding a higher quality service, differentiated products and stronger food safety credentials.

The company is also investing in a new feed premix plant in China, scheduled to complete at the end of 2016, to broaden its product range.

Frontier Agriculture, ABF’s joint venture arable marketing business with Cargill, reports that good income from grain trading was partly offset by lower demand for fertiliser and crop protection products. Excellent autumn sowing conditions and a mild winter have allowed crops to establish well, which bodes well for the spring season.

The ABF Group’s AB Sugar division saw a return to profitability with a £6m operating profit on revenues of £843m, compared to a loss of £3m on sales of £928m in H1 2015.

Within this total, British Sugar saw a strong operating performance across all four of its UK sugar beet factories, with the 2015/16 beet campaign finishing in February. Sugar production was just short of 1.0 million tonnes, down from the previous year’s record 1.45m tonnes, through a combination of a smaller crop area and yields returning to more normal levels.

But rising overheads from the smaller throughput, allied to high stock levels and currency factors reduced the domestic company’s operating profit.  While EU sugar prices have shown some improvement, world prices remain low. As British Sugar has agreed contracts for the 2016/17 beet campaign, it anticipates no material impact on its profit from the improvement in pricing until next year.

British Sugar is also building a state-of the-art anaerobic digestion plant to make biogas. The plant, at its Bury St Edmunds factory site in Suffolk, should come on stream later this year. It will use up to 100,000 tonnes of pressed sugar beet pulp as a feedstock annually to generate five megawatts of electricity for export to the grid. The project will reduce energy consumption by eliminating the need to dry the pulp and transport it off site.

The Vivergo bioethanol plant, now majority owned by ABF, operated well in the period. Better bioethanol prices saw an improvement in its H1 results. With wheat prices at their current levels, and production rates increasing, the company expects to make further progress across the rest of the financial year.