AB Agri has reported a 14% reduction in operating profit on 11% higher revenues from its latest full year’s trading. The company signalled a fall in profitability due to reduced margins at its UK and China feed operations in its pre-close trading statement, following strong competition, higher raw material costs and investment in new businesses.
The Agriculture division of Associated British Foods (ABF) made an adjusted operating profit of £50 million on revenues of £1.2 billion in the year ended September 16th 2017, compared to £58m and £1.8bn in the previous 12 months.
The UK feed businesses suffered from weak demand, while the smaller 2016/17 sugar beet crop reduced the co-product volumes available for the Trident Feeds business to market. Revenues were lifted by a full year contribution from Agrokorn, the Danish alternative proteins business acquired in February 2016. The integration of this business into existing operations has extended AB Agri’s capability in alternative proteins and created a platform for further animal nutrition, pre-mix and milk replacer development, as well as enabling geographic expansion.
The Primary Diets young animal nutrition business saw growth in exports from the UK to Poland, while construction of its new starter feed factory in Spain was completed by the year end.
AB Agri launched the Amur brand for sales of AD products and services in July 2016, and has now opened its own £15m AD plant close to its Sherburn-in Elmet feed mill in Yorkshire. Vivergo Fuels, ABF’s bioethanol manufacturing business, has developed new liquid co-products for the animal feed and anaerobic digestion (AD) markets. These partly offset the reduced availability of feed co-products from the food and drink industry during the period.
Feed micro-ingredient specialist AB Vista performed well in Europe, North America and Asia, with strong enzyme sales both in the traditional pig and poultry sectors and into the ruminant and aquaculture markets. Enzyme sales in Asia weakened in the second half after a strong start.
The company says its China operations saw lower margins and profitability due to the “more challenging environment” there – egg prices fell to their lowest level in for 20 years. The business relocated its feed mill in Shanghai to a new site with increased capacity, and it also opened its first standalone feed pre-mix site in China, to meet a growing demand for specialist, tailored feed ingredients.
Frontier Agriculture, the joint arable marketing venture between ABF and Cargill, saw grain trading activities adversely affected by the smaller UK wheat crop and low market volatility, while the crop inputs and agronomy side of the business benefited from firmer grain prices and good growing conditions.
“AB Agri’s extensive experience across the farming industry, combined with the greater availability of on-farm data and the use of proprietary technology, are being leveraged to provide greater insight into on-farm management,” sates ABF chairman George Weston. “This is aimed at assisting farmers to increase productivity and improve animal nutrition.”
British Sugar’s results are consolidated into ABF’s international Sugar division, which saw operating profit increase by 537% to £223m and revenues by 33% to 2.17bn.
UK profitability also “improved significantly” after British Sugar reduced its contracted beet area to help reduce high EU sugar stocks. The smaller 2016/17 crop area produced just 900,000 tonnes. With EU sugar quotas and export restrictions abolished from October 2017, the company increased its 2017/18 crop area by one third – with favourable growing conditions, the sugar yield is estimated at 1.4m tonnes.
Vivergo Fuels, which is part of the ABF Sugar division, made an operating loss due to higher UK wheat costs and lower ethanol prices. The plant is to close for maintenance on November 20th. The company notes the UK government proposal to raise the proportion of transport fuels from renewable sources to 9.75% by 2020 (currently 4.75%) but to cap crop-based sources at 4% until 2020, falling to 3% by 2026 and 2% by 2032. “Whilst we support the increase in the renewables mandate we are concerned about the reduction in the crop cap after 2020 and will maintain a close dialogue with government on this,” says Mr Weston.
The ABF Group saw operating profit grow by 22% to £1.36bn on revenues that were 15% higher at £15.4bn. With over 60% of its operating profit earned outside the UK, last year’s post-Referendum devaluation led to an £85m currency benefit. The euro’s strength in H2 lifted British Sugar margins.
Looking ahead to Brexit, Mr Weston notes: “Changes in legislation and trade agreements provide significant opportunities for the food industry to replace imported food and build export markets and, for UK agricultural policy particularly, they have the potential to benefit our group.
“In common with many other businesses, we share a concern about the risk of abrupt changes to the UK’s customs procedures. We therefore welcome the government’s intention to have a transition period beyond March 2019 in which to implement the necessary systems and processes.
“We are engaged at all levels with a number of UK government departments to ensure that the full range of opportunities and risks, as they affect us, are recognised.”