AB Foods, owner of Twinings tea and Silver Spoon sugar, said yesterday that its £1.2bn cash pile was burning a hole in its pocket and would be spent on acquisitions and organic growth.
Pressure is mounting on the company ahead of 2006 when there will be a big shake-up in the European sugar industry which could hit AB hard unless it moves into other areas.
The company is looking at a range of expansion plans including moving into biofuels where crops are grown to be burned in power stations as a renewable energy source.
It is also considering a big expansion of its highly successful Primark clothing retail business in Britain which employs more than 11,000 staff and competes against the likes of Matalan.
AB also wants to develop its drinks business after the suc cessful takeover of Ovaltine and is believed to be interested in brands such as Lucozade and Ribena should they be sold off by GlaxoSmithKline.
About 40% of AB's profits come from British Sugar, and the City is keen to see the company further spreading its interests.
Chief executive Peter Jackson said it had cut its dependence on British Sugar from 60% of profits but saw the business as a useful cash generator.
The mountain of money at AB has increased in the past 12 months after another strong trading performance which saw annual pre-tax profits come in at £473m, at the top end of analyst forecasts.
Mr Jackson, architect of the more dynamic and expansive strategy at AB that has put it on a similar stock market rating to Unilever, said cash was "not an asset giving a good return" given income from it fell by a third to £23m last year. He insisted there was no hurry to make acquisitions and none would be made unless AB could find the right targets at an appropriate price. AB, 60% owned by the Weston family, saw its shares fall 2% to 548.5p in early trading, but analysts said this was profit-taking after a surge in its price ahead of the financial results.
Nicola Mallard at Investec Securities pointed out there was no track record of AB "throwing money" at acquisitions but believed the share price would probably stagnate until action was seen.
"The impact of [European Union] sugar regime changes will remain until we get greater clarity and, given under-performance elsewhere, there are cheaper FTSE food stocks around."
Mr Jackson has concentrated the company into four basic units - grocery, primary food and agriculture, ingredients and retail. All showed strong profit growth, none more so than the Primark chain which saw a 21% profit climb on the back of a 7% increase in like-for-like sales from its 116 stores, of which half are in Britain.
Mr Jackson said there are tremendous opportunities for further growth with cities such as Leeds, Leicester and Nottingham which lack Primark stores. The business was originally based in Ireland but the team at Reading - head office for Britain - is gradually being built up.
The company sells only its own brands which are made in developing countries. Mr Jackson admitted that the company switched production to whichever country provided the best incentives but said it had strict guidelines and outside auditing to ensure there was no use of "sweatshop" labour.
