Associated British foods seeks to sell its loss-making sugar activities in China to focus on its sugar activities in Europe and Africa.
The British conglomerate, which owns the Primark distribution chain, has launched a tender for its five cane sugar factories in southern China and two sugar beet factories in the northeast of the country, sources say. close to the file.
The company could make up to $ 1 billion, according to analysts’ highest estimate. “Just like $ 1 billion would be a tremendous result for ABF,” Societe Generale analysts said. They estimated that the Chinese sugar business recorded an operating loss of £ 10million last year on sales of £ 240million.
ABF declined to comment.
The group, controlled by the Weston family, has made big changes to its sugar business, 90 percent of whose profits have dissolved in the past three due to collapsing world prices.
He recorded a net loss of £ 116million when shutting down two ‘unprofitable’ sugar beet factories in northern China last year, but more recently said that cutting costs had improved prices. performance.
In its half-yearly figures released last month, it reported a “much better result for the two remaining beet sugar factories in China.”
Graham Jones, analyst at HSBC, said in a recent memo: “We believe ABF’s Chinese sugar business is close to balance. Local prices remained much firmer than a year ago due to tight local stocks. “
George Weston, Managing Director, said last month that after three years of low world prices, “I think we’ve come to the right place. Sugar prices are rising.
Analysts say, however, that price volatility is likely to intensify due to deregulation of the EU sugar market next year, which will end quotas in producing countries and minimum guaranteed prices.
China is the smallest of ABF’s three geographic sugar regions, accounting for 23 percent of the unit’s sales.
ABF has turned its attention to the African sugar market and last month paid £ 262million to buy out minority partners in South African company Illovo Sugar. He said Illovo was attractive due to the growing demand for sugar in Africa, driven by increasing population and higher incomes.
ABF is one of the largest sugar manufacturers in the world, with a production capacity of over 5 million tonnes of sugar and 600 million liters of ethanol per year.
The sugar unit still has fairly strong sales, totaling £ 1.8bn last year, but is the weakest of the group’s five main businesses. It reported operating profits of £ 43million and a profit margin of 2.4% in its most recent financial year, which ended September 12.
Richard Chamberlain, analyst at RBC Capital Markets, said a sale of the Chinese company would be a positive step.
“Sugar tends to have a pretty low valuation multiple in most people’s sum of parts for ABF and Primark has the higher multiple,” he said. “So from a valuation point of view that would be positive, but it’s not a big deal.”