Reduced profits for AB Agri and Sugar

AB Agri’s full year profitability fell over its latest year, as product price increases failed to fully offset lower monogastric feed volumes.

The Agriculture division of Associated British Foods posted an operating profit of £32 million on revenues of £1.84 billion in the year ended September 16th 2023, compared to £41m and £1.72bn in the previous year – a respective increase of 7% and fall of 22%. The division’s return on average capital employed fell to 8.4% from the 10.3% twelve months earlier.

The Group says revenues were up 7% year-on-year with higher prices mitigating input cost inflation but were partially offset by lower volumes at its UK and China compound feed businesses. This is in line with the declining size of the European pig and poultry numbers because of disease and the high cost of inputs that led to producers reducing orders. Overall sales volumes and margins for AB Agri’s compound feed and starter feed businesses fell in the period.

The dairy sector was more resilient over the twelve months, with higher revenues and profits from its businesses serving that sector.

AB Agri’s China feed operations suffered from pandemic lockdowns that depressed demand for pork products, leading to a reduction in pig herds and consequently weaker feed demand.

The AB Vista international feed additive business traded “robustly” with a slight increase in sales and profitability. Frontier Agriculture, the joint venture arable marketing business with Cargill, saw a slight fall from the previous year’s record results, as grain and fertiliser trading returned to a more normal pattern.

The year saw considerable investment in AB Agri’s UK dairy business, with the acquisition of Kite Consulting and Advance Sourcing in November 2022, followed by the purchase of National Milk Records for £48m in August this year. These additions, which are complementary to its existing dairy services, will enable AB Agri to develop a unique full service offer to the dairy sector.

The AB Sugar division returned a full year operating profit of £119m on revenues of £2.55bn, compared to £164m and £2.02bn in the prior year. Return on average capital employed was 9.7% (10.3%).

European sugar production was low, with a reduced 2022/23 sugar beet harvest after the very hot dry summer. British Sugar’s output was 27% down year-on-year at 0.74 million tonnes – it was forced to buy imported sugar to make up for the shortfall in domestic production. Substantial trading losses incurred by Vivergo Fuels added to the pressure, as did the elevated energy costs. The reduction in profitability was partially offset by good beet pulp co-product sales and renewable energy sales.

Vivergo’s “substantial” losses reflected high first half wheat and energy input costs and low bioethanol prices. The losses reduced in the second half, with a “significant” improvement in margins by the final quarter.

AB Sugar China had a difficult year with pandemic lockdowns in that market, leading to an exceptional impairment charge of £15m for the period.

Looking ahead, ABF expects AB Agri to move forward as markets improve and the division integrates and leverages the acquisitions made over the last two years. It also expects a substantial improvement in AB Sugar profitability, with a better UK sugar beet crop and a significant reduction in losses at Vivergo.
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AB Agri’s full year profitability fell over its latest year, as product price increases failed to fully offset lower monogastric feed volumes. The Agriculture division of Associated British Foods posted an operating profit of £32 million on revenues of £1.84 billion…