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ABF sees sugar profits 'well ahead', despite South Africa setback

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Associated British Foods said that it would, helped by its European operations, report sugar profits “well ahead” of last year, despite a setback from a levy on the sweetener in South Africa.

 

ABF said that its South Africa-based subsidiary, Illovo, would deliver a “much-reduced profit” for the group’s financial year to September 12, undermined by both production and demand setbacks.

 

Illovo’s sugar output had come in flat year on year, at 1.63m tonnes, falling short of previous expectations, “with production at the end of the 2019-20 season curtailed by the early onset of the rainy season”.

 

Meanwhile, its sales had faced the headwind of South Africa’s 20% sugar tax, the so-called “health promotion levy”, besides constraints from Covid-19 on sugar exports through southern Africa from “restrictions on cross-border traffic between countries and on port capacity.

 

“Domestic South African market volumes reduced this year by some 10% following the recent introduction of a sugar tax,” ABF said, adding that “we expect volumes to continue at these lower levels”.

 

‘Strong recovery in prices’

Nonetheless, the group said that its sugar division would report revenue “ahead” of last year, with adjusted operating profit “well ahead, driven by the benefit of the strong recovery in European Union sugar prices”, a recovery “which will more than offset much lower profits at Illovo”.

 

The European Commission reported the EU white sugar price stood at E379 per tonne in June, the latest month for which data are available, up E58 per tonne year on year.

 

Values stood as high as E458 per tonne – up E75 per tonne year on year, and the highest on data going back three years - in the southern sugar-importing belt, including Greece, Italy and Portugal.

 

“EU sugar prices increased this year with a reduction in stocks following lower EU sugar production in the last two campaigns.”

 

EU sugar production

ABF added that “looking ahead, estimates for EU sugar production in the upcoming [2020-21] campaign are lower than this year”.

 

This reflects “reduced [beet] yields following difficult weather conditions and the prevalence of virus yellows disease in the beet”.

 

The European Commission, while it has yet to forecast EU sugar output for 2020-21, estimates a drop of 2.4% to 1.42m hectares in the bloc’s beet area this season, reflecting a 7.9% slide in acreage in top grower France.

 

Including the UK, the decline is of a more modest 2.0%, to 1.52m hectares.

 

’Horror stories’

 

However, the International Sugar Organization last week forecast an uptick in EU-plus-UK sugar output in 2020-21 of 223,000 tonnes to 16.81m tonnes nonetheless. Excluding the UK, the data imply a rise of 103,000 tonnes year on year in output, to 15.51m tonnes.

 

The ISO, while acknowledging the test to crops presented by spring dryness, following a wet autumn, said that “the mid-summer period has seen a slight recovery in the soil moisture situation”.

 

Marex Spectron separately on Monday reported that "horror stories about virus yellows continue to do the rounds", but added that "the truth is that the serious problems seem limited to France", and in particular to farms south of Paris, where only 15% of the country’s beet is grown,

 

"We think improvements in UK, N. Germany and other areas offset the fall in France," the trading house said, adding that "it will not be a good crop, but probably very close to last year’s figure".

 

Group results

ABF’s comments came as it forecast a “very strong increase” in combined adjusted operating profits at its sugar, grocery, agriculture and ingredients business.

 

In the Primark clothing division, profits would be “at least t the top end” of the range of £300m-350m the group had previously guided to, but – thanks to Covid-19 factors - remain well below nonetheless the £913m reported for last year.

 

Overall, “we expect adjusted earnings per share to be significantly below last year as a result of the decline in Primark’s profit due to the store closures and the ongoing impacts on customer demand caused by Covid-19,” the group said.

 

ABF shares closed in London up 0.5% at 2038p.

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