Berisford leavens ABF figures: Food group's gains eroded by lower interest rates and bread price wars

ASSOCIATED British Foods suffered a 60 per cent drop in the interest earned on its pounds 800m-plus cash pile in its first half. But a rise in the value of its 14 per cent stake in Berisford meant it managed a slight increase in profits.

The group made pounds 17m on its investment portfolio in the 24 weeks to 5 March. That was a sharp fall from the pounds 45m in the previous period, which had benefited from windfall gains following Britain's exit from the exchange rate mechanism in September 1992.

Peter Patchett, group chief accountant, said that most of the pounds 827m was in cash or short-term financial instruments and, excluding the effect of the group's equity investments, the return on the portfolio was about 5 per cent, down from 12 per cent last year.

The drop in interest rates reduced the cost of ABF's borrowings from pounds 15m to pounds 13m, despite an increase in debt from pounds 442m to pounds 471m. That left it with net cash of pounds 356m, pounds 73m higher than the previous year.

'We are continually looking at acquisition opportunities,' Mr Patchett said. 'But it is a question of finding the right one - a good fit at the right price.' Last week, ABF bought the agricultural feeds division of J Bibby for pounds 35m.

Overall, the group made pounds 181m compared with pounds 176m the previous year. Operating profits rose 13 per cent to pounds 147m, on sales static at pounds 2bn. The increase was largely due to a near-doubling of profits from its retail businesses, which include the Crazy Prices supermarket chain in Ireland and Primark, the textile business, in Britain. Margins improved from 2.1 to 3.6 per cent.

British Sugar, the beet sugar manufacturer, rose pounds 2m to pounds 77m, despite a reduced harvest, helping to increase profits in the manufacturing division by 6.8 per cent to pounds 125m. Baking and milling continued to suffer from bread price wars, although profits were marginally ahead as costs were squeezed.

Mr Patchett blamed the price war partly on independent bakers who supplied white, sliced bread at low prices to win business.

The bread wars have been exported to Australia which, together with the impact of a contamination scare over meat pies, led to a pounds 1m fall in profits there to pounds 16m, despite a 9 per cent rise in sales.

There was a pounds 29m gain on the group's 14 per cent stake in Berisford, former owner of British Sugar which recently acquired the Magnet builders' merchant chain.

Earnings per share were 28.5p, up from 27.2p, but the dividend was held at 8.5p. The shares closed 15p lower at 583p.