Is there such a thing as too much sugar? Doctors and - British Sugar owner Associated British Foods (ABF) – will tell you there is. The global glut of the sweet stuff has sent prices into a downward spiral, taking profits at ABF’s sugar business down 76% to £43m for the year to September 12.
That contributed to an overall pre-tax profit fall of 29.7% for the group to £717m, or a 6.1% fall in operating profit to £1.1bn before losses from the closure of a couple of Chinese sugar factories and the assumption of BP’s share in their Hull-based biofuels joint venture, Vivergo Fuels.
In recent times, ABF as a group has been protected from the vagaries of the commodity markets by its groceries and ingredients businesses, which includes Twinning’s tea and Allied Bakeries, and by its rather incongruous clothing retailer Primark.
That held broadly true this year, with sales at Primark up 13% on a constant currency basis (8% at actual rates), largely as a result of a 9% increase in selling space as ABF builds more stores. The good times may not last, however. ABF sources a lot of its merchandise in US dollars, which have soared over the last few months as fears over China’s economy mount and the EU’s quantitative easing kicks in.
The relative weakening of the euro and currencies in emerging market economies ‘will have a significant influence on the results for the coming year,’ said chairman Charles Sinclair, who added that its strongest impact would be on Primark and British Sugar.
Time may get worse before they get better, though ABF still expects sugar profits to stabilise next year, ahead of the removal of the EU’s sugar quota in 2017. ABF shares fell 0.3% to 3,423p on the news.