In a trading update issued ahead of its close period, Associated British Foods (ABF) has confirmed that it is expecting some reduction in earnings after tax in the second half of the financial year to 16 September 2006.

The company said in April after publishing its interim results that there would be some reduction in profits in the second half as a result of price pressure in the first half in the EU sugar businesses, adverse trading conditions in its bakery operations and higher energy costs. It has now announced that the reduction in earnings will be in line with those expectations.

The company, which will publish its second-half and full-year results on 7 November, said that since the half-year stage it had undertaken a number of initiatives which represent a significant investment in the future of its sugar operations, including the acquisition of a 51% interest in Illovo Sugar Limited, the largest sugar producer in Africa and one of the world’s leading low-cost producers. Well over half of the group’s sugar production next year will be outside the EU, ABF said.

In July, the company announced its intention to purchase additional quota in the UK and Poland, and said it planned to close factories in York and Allscott at the end of the 2006/7 year. An exceptional charge to cover the costs of the factory closures will be made in this financial year’s income statement, and will be excluded from the calculation of adjusted earnings.

In its grocery division, Twinings, Ovaltine, Ryvita, Capullo in Mexico and Westmill all achieved strong profit growth, the company said, but profit at Silver Spoon was affected by pricing pressure on granulated sugar. In Australia, ABF said there were encouraging improvements in the operation of the new Sydney bakery. But trading has been “particularly difficult” at Allied Bakeries, with lower volumes of both Kingsmill and own label significantly reducing profitability.