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Higher EU sugar prices should find support, says ABF


Associated British Foods flagged the potential for support for the European Union’s, recovering, sugar prices to to as the clothes-to-grain trading group revealed an end to its run of declining sales in the sweetener.


The UK-based group, whose assets range from the Twinings tea brand to a half share in the Frontier grain trading joint venture with Cargill, said that its sugar revenues had in its third financial quarter, to late June, come in “in line with last year”.


“This represented an improvement in the decline in sales” in the first half of the group’s 2019 financial year, for which ABF reported a 13% drop in sugar revenues to £769m, and adjusted operating profits of just $1m.


In the full year to September 2018, the group reported a 15% drop in sugar revenues, and adjusted operating profits of £123m.


EU prices

ABF highlighted the role in the latest improvement of timing effects, with some sales at its southern African Illovo business delayed from earlier in the year, besides showing growth.


However, the group has also flagged the stabilisation in European Union sugar prices, after their decline from more than E500 a tonne in August 2017 to E312 a tonne in January this year, depressed both by weak world values and the knock-on effects of the bloc’s market deregulation.


EU sugar stocks “are forecast to remain low, which should underpin the higher spot EU sugar prices following their recovery earlier this year”, the group said.


European Commission data show the EU price creeping up to E319 a tonne as of April, the latest data available.


‘Serious concern’

The bloc’s sugar inventories “have been tightening during 2018-19, as a consequence of lower sugar production in the last campaign”, when beet revenues were hurt by drought, ABF added.


“Early indications are that EU sugar production for 2019-20 will remain at this lower level, following a reduction in the crop area,” with weaker values feeding through into some switch by growers to other crops.


Recent forecasts for EU sugar output in 2019-20 include an 18.4m-tonne estimate from Rabobank, and an 18.0m-tonne figure from Marex Spectron, based on expectations of a 5.4% drop in beet area, but 11% recovery in yields.


However, Marex also note a “serious concern” that the EU’s ban on neonicotinoid insecticides “could cut production very severely, to the time of more than a million tonnes”.


Nonetheless, for the UK, where ABF processes all the sugar beet harvest, the group said that this year’s crop had "advanced well", with "early indications... that [sugar] production for the 2019-20 campaign will be at least the 1.15m tonnes produced last year".


EU sugar output in 2018-19 is estimated by the European Commission at 17.62m tonnes.


Profits forecast

ABF made the comments as it reported a 2% rise in sales for the 40 weeks to June 22, and stuck by expectations that full-year earnings per share will come in “in line with last year”.


“We continue to expect that the full-year profit decline in sugar has been reflected in the first half,” the group said, while forecasting full-year profit increases at its Primark clothes retail business, and, on an underlying basis, at its grocery division.


ABF shares stood 0.6% higher at 2459p in morning deals in London.

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