Not as sweet as expected but sugar profits should surge in the near future, says ABF
British Sugar has operations in Cambridgeshire, Norfolk and Suffolk and the Sugar division worldwide has grown more slowly than anticipated in the second half of the financial year, which ends on September 14.
In a trading update, chief executive, George Weston said ABF overall had performed well with good topline growth. He said: “Sugar profitability this year remains ahead of FY23; however, it is below our previous expectations. This is due to a sharp fall in European sugar prices which is now expected to impact Sugar profitability in FY25 before recovering in FY26.
“Notwithstanding this short‐term volatility in Sugar, we are optimistic about the outlook for the rest of the group, which is well positioned for further strategic progress supported by continued reinvestment for the longer term.”
Weston said the performance of the Sugar business had been mixed. “Overall, we expect Sugar to deliver adjusted operating profit of approximately £200m, which is still strongly ahead of last year but, due to a reduction in European sugar pricing, lower than previously anticipated.
“Europe was challenging overall in H2. Production levels have been strong, benefiting from the return to a more typical sugar beet crop in the UK. However, we have seen sharper than expected falls in UK and European sugar pricing due to increased supply in the market.
“As a result, both of our European Sugar businesses have experienced a negative impact to sales and profitability in Q4.
“On a constant currency basis, our overall African sugar business has grown well in H2. We have had a strong performance in Zambia and South Africa, whereas in Malawi and Tanzania, high rainfall has impacted sugar cane yields and production this year.
“In Tanzania, this has led to unexpectedly high volumes of sugar imports and lower prices. On an actual currency basis, our African sales are expected to decline in H2 due to the impact of foreign exchange translation.
“In Sugar, we expect the reduction in pricing seen in Q4 FY24 to significantly impact performance in our European sugar business next year, with operating profit for the overall segment now expected to be in the range of £50m to £75m in FY25.
‘However, we expect profitability to recover in FY26 to be more in line with FY24, as a result of the lower beet prices that have been contracted and a rebalancing of supply and demand in the market.”
In August, ABF completed its second £500m share buyback programme. Given the expected strong cash generation this year, it intends to extend this programme by an additional £100m, which it expects to complete around the time of its annual results announcement on November 5. No fireworks are expected but ABF says it will provide a detailed update on its capital position at that time.
