Associated British Foods today forecast an improvement in second half profits despite a continuing squeeze from rising crop prices and currency swings.

ABF, whose brands include Silver Spoon sugar and Twinings tea, said that it expected growth in operating profits in the six months to September 18 to be similar to the 10 per cent seen in the first half.

But, in a trading update, the group said pension charges would cut pre-tax profits by £15 million in the current financial year.

Adverse exchange rates put heavy pressure on British Sugar where record productivity and a good beet crop were not expected to prevent UK profits from falling.

British Sugar, which has six factories in the UK including processing plants at Bury St Edmunds, Newark and Telford, has been hit by the weakness of the euro against sterling.

But the group said lower UK profits would be more than offset by higher crop prices in Poland, after the introduction of the EU sugar regime, and in China.

ABF also said it had successfully mitigated the impact of a double-digit increase in wheat prices on its grocery division, which includes Kingsmill bread and Ryvita.

Wheat prices have remained high since last year when the summer heatwave left farmers in continental Europe battling against drought.

At the same time, corn and soya oil costs surged in the US and remained "significantly ahead of last year".

ABF, which generates annual sales of £5 billion and employs around 35,000 people, said it had been able to lift the price of its products and improve efficiency in response to the higher raw material costs.

Wet weather and concerns over consumer confidence were unable to stop same-store sales at high street retailer Primark pushing ahead in the second half.

John Bason, the ABF finance director, said that like-for-like sales at the 120-strong chain of Primark stores should have risen by around 7 per cent in the second half of the year - faster than the 5 per cent growth in the previous six months.

ABF has been on the acquisitions trail this year, spending £242 million on four companies that include the food brands of G Costa and Billington's sugar. In July, it made its largest acquisition since the purchase of British Sugar in 1990 with the purchase of an international yeast and bakery ingredients operation and a US-based herbs and spices division from Burns, Philp & Company.

ABF also broke into Mexico in May after buying Unilever's food oils and fats brands in Mexico for 110 million US dollars (£59.9m), including Capullo cooking oil. Early results from this acquisition are in line with expectations.

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