AB Foods hikes prices as commodities surge

20th Jan 2011 06:58

Associated British Foods (ABF) grew revenue by 10% in the first 16 weeks of the financial year, in line with expectations, but rising commodity prices are hurting margins and the weather-hit sugar crop will trim annual profits. Revenue at constant exchange rates, which cancels the effect of last year's weak pound against the South African rand and Australian dollar, was up 7%.Higher prices boosted profits at the sugar business where revenue rose 7%, but the recent increase in temperatures following the pre-Christmas freeze is damaging the 25% of this year's sugar beet crop still to be processed.ABF is also having to hike prices to recover higher wheat costs, and higher cotton prices are expected to have "some impact" on margins at budget clothes retailer Primark where sales grew 12% during the period.Food and drink brands did well across the board, especially Twinings Ovaltine and Kingsmill bread, with revenue at the unit up 9%. But prices are going to have to rise to cover the surging cost of wheat, corn oil and spices. "Delays in securing these increases will adversely affect margins and the impact of continued rises in commodity costs will need to be carefully managed," the firm said.Meanwhile, higher molasses prices in China have hit operating margins, while commissioning costs of the new yeast extracts factory in China will hurt first half profit."Group results for the period were in line with our expectations but the impact of the continuing rise in some commodity costs will need to be managed over the coming months," the firm said Thursday. "Last year saw a step change in the group's profitability and although further growth is expected for the coming year, this will be moderated by the eventual impact of the adverse weather conditions on UK sugar production."