Associated British Foods plc (ABF) has reported that for the half year, the company expects excellent progress in adjusted operating profit and adjusted earnings per share for the group. The trading outlook for the group for the full year is unchanged with progress expected in adjusted operating profit and adjusted earnings per share.

In a trading updat prior to entering the close period for its interim results to 4 March 2017 which are scheduled to be announced on 19 April 2017. The company said it expects a stronger cash flow, before acquisitions and disposals, in the first half of this year compared to last year. This will be driven by a higher profit before depreciation and amortisation, and a lower working capital outflow. Capital expenditure will be higher, driven by Primark’s expansion.

Acquisitions in the year to date amount to £60m and with the benefit of net proceeds of £0.5bn from the sale of the US herbs and spices business and the south China cane sugar operations, we expect a net cash balance of some £200m at the half year.

The company continues to expect substantially all of the full year increase in adjusted operating profit to be generated in the first half. This is for the following reasons:
•    The benefit arising from the translation of overseas results in the first half is expected to be some £50m but, with the weakening of sterling in June last year, and at current exchange rates, there will be less translation benefit in the second half;
•    The full effect of sterling weakness against the US dollar on Primark’s purchases will result in a greater margin decline in the second half because our currency hedges were at more advantageous exchange rates in the first half; and;
•    Last year’s change in Illovo’s financial year end has benefited the first half.

AB Sugar revenue from continuing operations will be well ahead of last year on a comparable basis taking into account the change in Illovo’s year end. Higher sugar prices, increased production in Africa, and further benefit from the performance improvement programme will deliver a substantial increase in profit.

With 2016/17 forecast to be the second year of global sugar deficit, world prices are higher than last year. A tightening of EU stock levels has strengthened domestic prices across the region. Domestic and regional prices increased in Africa as a result of higher US dollar denominated world prices.

In the UK, the beet crop is smaller than the prior year and, with marginally lower yields, production is projected to be just under 900,000 tons. The UK campaign was delayed in order to maximise the growth of the crop with production at Newark running into late February. With sales fully contracted for the year, firmer prices have been confirmed which, combined with lower beet costs and a weaker sterling/euro exchange rate, will drive substantial improvement in British Sugar’s operating profit. The new anaerobic digestion plant at Bury St Edmunds, which produces biogas from sugar beet pulp, became operational in the summer of 2016. The biogas is fed into a gas engine generating low-carbon electricity which then exports the renewable power to the national grid.

Azucarera in Spain is expected to produce close to 385,000 tons of sugar from beet. In response to strengthening customer demand and partly to compensate for a lower volume of beet sugar, the Guadalete refinery, which processes cane raws, is operating this year and is now expected to produce 295,000 tons. Operating profit will be much improved with the benefit of higher sugar prices and increased co-product revenues.

In China, we completed the sale of our five cane sugar factories to a consortium led by Nanning Sugar on 22 December 2016 for total proceeds, including debt assumed, of Rmb2.6bn (£297m). Tax arising on the transaction is not expected to be material. Our two beet factories in north China at Zhangbei and Qianqi, are operating well and will process a record beet crop. Adverse weather conditions experienced during beet harvesting and storage have adversely impacted sugar levels in the beet but, with the higher volumes and improved prices, this business is expected to deliver a much improved profit this year.

Illovo has made good progress following last year’s weather-related crop shortfalls and, with further recovery expected in the new season production, this financial year is expected to improve to 1.7 million tons compared with 1.4 million tons for the same period last year. Revenue increased substantially in the first half driven by higher volumes and prices, and benefiting from the introduction of new consumer pack sizes. Cost reduction from performance improvement initiatives in Zambia, Malawi and Mozambique substantially mitigated local inflation.

In Ingredients, revenues in the first half are expected to be ahead of last year at constant currency and substantially ahead at actual exchange rates. Operating profit growth for the half year will be strong on both measures, with further recovery in yeast and bakery ingredients and another excellent performance from ABF Ingredients.

At AB Mauri, this has been achieved despite challenging economic conditions in a number of countries especially its important markets of Argentina and Brazil. The trading performance in Europe has been in line with last year with notable success for the recently opened UK Technical Centre which enables the development of new bakery ingredient solutions and provides technical support and training to customers. Asia is delivering a stronger performance this year following last year’s manufacturing rationalisation, and margin improvement in Australia has been achieved through overhead reduction.

Trading in North America has been good and in January we completed the acquisition of Specialty Blending, a bakery ingredients business located in Cedar Rapids, Iowa. The combination of this high-quality and well-positioned ingredients blending operation with AB Mauri’s global technology capability will strengthen our North American business.

ABF Ingredients has had an excellent performance in the first half. Sales of feed enzymes were particularly strong and growth was also achieved in bakery, food and technical enzymes. Abitec in the US continues to strengthen its range of bioavailability enhancement solutions and we have also seen sustained growth in functional excipients and drug delivery systems in the US.