ABF weighs closing Yorkshire plant after accusing government of ‘undermining’ viability
More than 100 jobs could be at risk after the owner of a Yorkshire bioethanol plant said it was considering shutting down the facility, blaming the move on the government “undermining” its viability.
The Salt End, Kingston upon Hull-based plant, which is operated by Vivergo and employs around 150 staff, has swung to a loss after cutting production levels in response to low bioethanol prices.
Vivergo owner ABF said it was now exploring options for the future of the site, which is the largest of its kind in the UK, including mothballing or closing the facility.
“The way in which regulations are being applied to bioethanol is undermining the commercial viability of our business,” ABF said.
“We are having constructive discussions with the UK government to explore regulatory options to improve the position.
“There is no guarantee that these discussions will be successful, and we will either mothball or close the Vivergo plant if necessary.”
The plant produces hundreds of millions of litres of bioethanol each year from locally-sourced wheat, as well as generating around half a million tonnes of animal feed.
ABF CEO George Weston told City PM the plant had been hamstrung by the government’s decision to double-count renewable fuel certificates for overseas producers, which “gives them an unbeatable cost advantage.”
“We don’t believe that the government’s been obliged to do that, they’ve chosen to, and they’ve put this business in an impossible position by the action they’ve taken,” he said.
“We really are doing everything we can to save that plant, we don’t want to mothball or shut it but we may be forced to.”
‘Frustrating’ results
Problems at the Yorkshire plant, as well as a general downturn in sugar prices, helped push ABF’s sugar division to a loss of £122m for the six months to March, down from a profit of £121m the previous year.
The company said it was also considering a restructuring of its Spanish sugar business, because “the deterioration in market conditions has demonstrated that the cost base is structurally too high.”
Overall turnover at ABF declined 2 per cent to £9.5bn over the period, largely as a result of the firm’s poor-performing sugar unit. The London-listed conglomerate, which also owns clothing retailer Primark, posted pre-tax profits of £692m, down 21 per cent from the previous year.
Shares sunk 9% to 2,027p, wiping more than £1bn from the firm’s market cap.
The firm said strong sales in Primark stores in Europe and the US was offset by a weaker performance in the UK and Ireland, though there were “early signs of improvement” in recent weeks.
CEO George Weston said: “These results reflect a robust performance in four of our five divisions.
“I am frustrated with the results in our sugar business, but we are clear on what needs to be done by way of operational and regulatory solutions to improve financial performance.”
ABF declared a dividend of 20.7p, in line with the previous year.
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, said: “There is no doubt that AB Foods faces a challenging environment. But investors will feel it could and should be doing better.
“The performance of the sugar business leaves a bitter taste and with cost pressures building, improving Primark’s UK sales must be an urgent priority.”