The UK’s largest agribusiness, AB Agri, has blamed lower feed margins for a 30% fall in operating profit from its latest full year’s trading, which it terms a difficult year.
The company, a division of Associated British Foods, made an operating profit of £42 million on revenues of £1.39 billion in the twelve months to September 14th 2019, compared to £59m and £1.35bn in the previous full year. The adjusted profit margin fell to 3% from 4.4% the year before.
The 3% revenue growth reflects higher feed sales in the period. The company’s monogastric compound feed volumes in the UK increased in line with higher demand from the pig and poultry sectors.
However, margins and profitability fell for a number of reasons. The business lost its exclusive source of high margin DDGS co-product feed materials from the ABF-owned Vivergo bioethanol plant on Humberside which was closed in September 2018. Feed sales also suffered from lower supplies of sugar beet feed – again sourced exclusively through sister company British Sugar – for dairy cattle, due to the smaller 2018/19 beet crop after the very hot, dry summer.
The group’s UK animal feed margins were lower generally, which “reflected an under-recovery of energy and distribution costs”. As a result, the company says overheads will be reduced and a restructuring charge has been taken this year.
AB Agri’s feed operations in China saw higher feed sales at increased prices to recover rising feed material prices.
The Speciality Nutrition premix and starter feed business, comprising Premier Nutrition and Primary Diets, saw profitability fall due from a very high level the previous year after unusually high vitamin prices. The company successfully commissioned a new state-of -the-art pre-mix factory at Fradley Park in Staffordshire and acquired a small starter feed business in Poland during the year.
Sales and profit at the AB Vista feed micro-ingredient operation were similar to the previous year, which the company says reflect an increasingly competitive phytase enzyme market. But it says early results from its new animal digestion aid Signis are encouraging.
ABF’s sugar division, AB Sugar, saw a reported an operating profit of £26m on sales of £1.61bn, from the £123m and £1.73bn in the previous year – respective falls of 79% and 7%. However, the lower profit largely follows the first half performance – the group notes that H2 profit was ahead of expectation and the last second half.
The oversupply in the EU sugar market, following the end of EU quotas in 2017, resulted in continued lower prices for AB Sugar’s operations in the UK (British Sugar) and Spain in the period. But the company notes that EU stock levels tightened during 2018/19 following reduced production from the small beet harvest after the dry summer: UK sugar production in 2018/19 was 1.15 million tonnes from the previous year’s 1.37m tonnes.
EU sugar production for 2019/20 is forecast to remain at this lower level, as a smaller planted crop area offsets better beet yields from the current campaign. This will help to reduce stocks further and support EU prices and the company predicts increased sugar profit in the current financial year.
British Sugar expects domestic 2019/20 sugar production to rise marginally as higher yields outweigh the smaller UK crop area this year. It reports good early progress across its four beet factories, with the majority of 2019/20 sales now contracted.
Meanwhile, all sugar businesses are focused on reducing their cost of sugar production through ongoing efficiency and performance improvement programmes.
Germains, British Sugar’s UK-based seed treatment and enhancement specialist, saw domestic sales volumes decline, which it mainly attributes to the EU ban on neonicotinoids as a seed treatment from this year. But sales to European and US horticulture markets continued to increase, while the business has invested in additional production capacity at its Californian facility in the US.
On Brexit, ABF says its businesses have completed all practical preparations, with contingency plans in place should the businesses experience some disruption at the time of exit.
ABF has reported a group operating profit of £1.42bn on revenues of £15.8bn in the latest year, up from £1.4bn and £15.57bn in the previous year.