Vivergo plant closure part of £200m financial hit to Primark owner Associated British Foods
The parent firm of Primark has warned of a £200m hit from the closure of its Vivergo bioethanol plant in Hull and restructuring efforts from its struggling Spanish sugar business.
Associated British Foods (ABF) said it expects its sugar business, which included the Vivergo operation, to post an operating loss “close to £40 million”.
ABF announced the closure of the site last month after failed negotiations with Government, with the firm criticising the Government’s decision to end the 19 per cent tariff on American bioethanol imports as part of the recent UK-US trade deal, which would boost US competitors.
In its latest results announcement covering the six months to September 13, the company said: “Following extensive negotiations, the UK Government decided not to provide the solution required for Vivergo to operate on a consistently profitable basis and we therefore announced its closure. The operating loss of this business will now be within 'disposed and closed' operations, not in the sugar segment. The adjusted operating profit of the sugar segment is therefore expected to be close to breakeven, and sales are expected to decline by around 10 per cent.”
The update said “sales and profitability in our sugar businesses in the UK and Spain declined significantly as a result of persistent low European sugar prices and a high cost of beet”.
It added: “In Spain, restructuring actions to reduce our beet manufacturing footprint are underway, as we focus on removing structural costs that are too high and improving efficiency.
"We expect the closure of Vivergo and the action we are taking in Spain to result in restructuring costs and impairment charges of approximately £200m, of which around £50m are cash costs which will be incurred in the current financial year and into next year.”
Vivergo has previously said the Hull plant, which employed about 160 people and was also to indirectly support 4,000 further jobs locally, could produce up to 420 million litres of bioethanol from wheat sourced from thousands of UK farms.
Ben Hackett, managing director of Vivergo Fuels, described the Government’s decision not to offer direct funding to the industry as “a flagrant act of economic self-harm”.
The Government said in response: “We have worked closely with the companies since June to understand the financial challenges they have faced over the past decade, and have taken the difficult decision not to offer direct funding as it would not provide value for the taxpayer or solve the long-term problems the industry faces.”
ABF also reported Primark sales are set to have grown by 1 per cent over the last six months. However, like-for-like sales are expected to have dropped by around 2 per cent over the period but were offset by the group’s store expansion plans, with Primark opening 15 new stores including two in the UK.