Associated British Foods warned of further challenges for its
sugar division, after a 60% slump in profits, as it grapples with a shake-up of
European Union laws which has also hurt rivals such as Suedzucker too.
The retail-to-grain trading conglomerate, while reporting a
4% rise to £468m in group pre-tax profits for the half year to March 1, said that
operating profits in sugar plunged to £64m, saying the business had been "severely
affected" by weak prices of the sweetener.
Sugar revenues fell 22% to £1.03bn.
"The impact in the European Union is exacerbated by an intensification
of competition ahead of quota abolition in 2017," the group said, a reference
to the lifting of regulations including production limits which is already
having a large impact on the sector.
The prospect of more choice for supplies has been prompting
buyers to shop around for better deals, with some observers cautioning over
stronger competition from isoglucose, Europe's equivalent of North America's
high fructose corn syrup.
Earlier this month, shares in Germany's Suedzucker, Europe's
top sugar group, suffered their biggest ever one-day decline on a profit
Lower EU sales volumes and prices "are expected to persist
through the second half" of the group's financial year, ABF said.
'Heavily in surplus'
While viewing as "encouraging" a recent recovery in world
sugar prices, boosted by drought in Brazil, he group forecast that profits in
its sugar division in the second half would be "substantially lower than last
Besides the price setbacks, the group forecast an 18.6% drop
to 330,000 tonnes in beet sugar production in Spain.
In China, the group cautioned of a "further deterioration in
sugar prices as a high level of imports have left the market heavily in surplus".
Customs data on Wednesday showed China's sugar imports
hitting 411,132 tonnes last month, double those a year before, and taking total
buy-ins for 2014 so far to 863,563 tonnes, growth of 63%.
In the UK, where ABF is based, the group nudged higher its
forecast for sugar production to 1.32m tonnes, from 1.28m tonnes, the highest
figure since the EU sugar regime was put in place eight years ago.
ABF cited a stronger-than-expected beet crop, saying that "favourable
growing conditions through the mild winter in the UK resulted in the crop
continuing to grow into the new calendar year, with good beet quality and high
However, the group also signalled further setbacks at its
Vivergo grain ethanol joint venture in northern England which, while overcoming
operational teething problems, was facing a softened market
"Production volumes at the Vivergo bioethanol plant in Hull
have increased steadily but profitability was adversely affected by lower
ethanol prices," ABF said.
Feed takings down
The group unveiled lower results at its agriculture division
too, with revenues down 2.5% at £625m and profits down £1m at £19m, although
this was in part down to currency movements.
A drop in revenues from UK feed, supressed by a mild winter
which reduced livestock farmers' reliance on bought-in fodder, was "partly
offset" by growth in China.
However, ABF unveiled a sharp rise in profits-of 26% to
£298m, at its Primark clothes retail arm, supporting group profits growth, and
with the group announcing a roll-out of the chain into the US.
The group results were well received by analysts at Panmure
Gordon, who raised to "buy" from "hold" their rating on ABF shares, and their
target price on the stock to 3210p from 2760p.
"We think Primark's launch in the US will be successful, as it
has been across a wide range of European economies," the broker said.
The shares stood 8.8% higher at 2961p in morning deals in