ABF’s recent annual report provides details of its operations for sugar, agriculture and bio-fuel. The full report is available here but highlights are presented below.

The results from Sugar moved substantially ahead this year with both revenue and profit increasing by 24%. This was achieved by a sharp recovery in profit at British Sugar UK, reversing the trend of declines in recent years, and continued growth by Illovo which more than offset disappointing results in China. In the EU, the UK and Polish businesses increased profit with good factory operating performances, robust sales, the benefit of a strong euro, a reduction in the restructuring levy and favourable energy costs. Very favourable growing conditions in the UK yielded an excellent beet crop with sugar per hectare at record levels and 1.19 million tonnes of sugar was produced. Factory operations benefited from further improvements in energy efficiency, returns from prior year investments and high sugar extraction rates. The contribution from the combined heat and power generation plants at Bury and Wissington increased with the supply of electricity to the grid at high prices. The business in Poland delivered a strong commercial performance which more than offset lower sugar production of 163,000 tonnes. Restructuring work at the closed factory sites in York, Dobre and Ostrawite proceeded to plan, and the associated renunciation compensation of €116m was received in full from the European Commission in June 2009.

A number of developments during the year strengthened ABF’s presence in the EU market. It acquired Azucarera Ebro, the leading sugar producer in Iberia, in April this year. It operates from four beet factories, three in the north of Spain and one in the south. A sugar refinery is being commissioned on the site of the southern factory, given its proximity to the port of Cadiz, and it will have the capacity to produce 400,000 tonnes of sugar. The supply of cane raws is expected to be primarily from Illovo. In August ABF announced that it had reached agreement to sell the Polish sugar business, the country’s fourth largest producer, to Pfeifer & Langen. Completion, which is subject to regulatory approval, is expected in late 2009. During the year British Sugar established a joint venture with Illovo, Mitra Sugar, to source sugars from outside the EU and market them to companies within the EU.

 Illovo delivered an excellent operating result driven by strong sales. These resulted from higher local market prices, currency translation gains for the operations outside South Africa and by recovery of the world sugar price. Sugar production was lower than expected at 1.9 million tonnes, with poor weather conditions in South Africa impacting the cane crop and excessive rains and early commissioning difficulties impacting volume throughput at the expanded mill in Zambia. In contrast Malawi had another excellent year with good production volumes and operating performances. The business in Zambia achieves the highest cane yield per hectare of any of Illovo’s operations at levels which are world class. During the year ABF completed the doubling of capacity in Zambia as well as smaller scale expansion projects in Swaziland, Mozambique and Tanzania. Streamlining of the South African business continued with the sale of the Umfolozi and Pongola mills and creation of a new joint venture at Gledhow. Illovo successfully raised rand 3bn of additional capital through a rights issue to finance its future expansion plans. Proceeds were received in late September after the group’s year end. The Zambian business completed a US$50m rights issue during the year to finance its capacity increase.

The businesses in China had a very difficult year with the significant sugar stock overhang from 2007/8 depressing prices during the first half. A reduced crop in the north, with exceptionally low sugar content, impacted operating costs. Sugar prices in China rallied in the second half driven by government purchases, a smaller national crop this year and higher world sugar prices. Importantly for the price outlook, consumption exceeded production in China by some 1.7 million tonnes in 2008/9. Looking forward the business will be strengthened by the commissioning of the new cane sugar mill at Jinchengjiang and by the beet sugar business focusing on the development of agriculture and production in seven of its 12 factories.

Construction of Vivergo’s wheat bioethanol plant is progressing well at Hull in the UK, with commissioning now planned for autumn 2010. All major plant items have now been received and installation is well underway. Contracts have been signed with AB Agri to supply wheat from Frontier and for the sale of the distillers’ grain co-products. It is expected that a yeast supply agreement with AB Mauri will be signed shortly. The European market for bioethanol is still in its infancy but is expected to grow considerably over the next few years. The UK mandate for the inclusion of renewables in transport fuel requires the current 3.25% to increase to 5% by 2013/14.

Longer term, the EU Renewable Energy Directive will require the member states to derive 10% of transport fuel from renewable sources.

AB Agri had another very strong year continuing to perform well above expectations in a market that experienced lower commodity prices but with continued volatility. Growth was achieved both in its UK and international operations, driven by good market experience, trading and nutritional expertise and by excellent performances from new business streams. Frontier, the grain and crop inputs supply joint venture, produced exceptional results having anticipated the correction in the value of the global grain markets and the increased demand for seed, fertiliser and crop protection products. In a quite different market from the previous year, Frontier’s unique national grain trading structure and its integrated crop inputs supply business enabled it to respond quickly to changing customer demand. Its national network for grain trading and exporting facilities was ideally suited to merchandising the UK crop which was not only large but also of variable quality.

KW Trident, the ruminant feeds business, significantly increased its presence in the UK blends market. AB Vista delivered excellent sales growth of its high-technology, valued-added feed enzymes, and a new enzyme, Econase XT, was recently granted approval by the European Food Safety Authority. International sales of the other specialist products, pre-mixes and piglet starter feeds, continued to grow, particularly in the developing markets of Eastern Europe.

As part of its sustainable supply chain offerings to processors and retailers, AB Agri has developed the first Carbon Trust accredited greenhouse gas reduction model for dairy farms. This has been used to help Sainsbury reduce the overall greenhouse gas emissions from its milk-supplying farms. Sainsbury has recently signed an agreement with AB Agri to extend this carbon-scoring work to include beef, lamb, pork, poultry and eggs in its UK supply chain.

This will require AB Agri to carbon footprint more than 18,000 farms over the next four years. ABF continued to invest in the compound feed business in China. We opened a new mill in Henan province to meet this market’s high demand for pig feed, replacing an old leased mill, and began construction of a new ruminant-specific mill in Tianjin. When complete, this expansion will have delivered a 20% increase in production capacity.