Associated British Foods shares drop on hit from sugar market slump

By Louis Goss

Associated British Foods shares dropped on Thursday after the conglomerate said it expects its profits will continue to suffer in 2025 from an ongoing glut in the sugar market caused by the rise of genetically modified crops and a surge in imports from Ukraine.

The FTSE 100 company which owns brands including Twinings tea, Kingsmill Bread, and Patak's curry pastes, said in a trading update that a sharp drop in European sugar prices had hit profits from its sugar division in 2024 so far.

Europe's sugar market has suffered from oversupply in recent months, driven by higher crop yields as a result of more resilient genetically modified crops and the lifting of EU tariffs on sugar imports from Ukraine. The EU later reintroduced tariffs on Ukrainian sugar in July.

"The European market is oversupplied, and there's been a price reaction, which we knew would come. We didn't think it was going to go as far as it did, but it's the best part of EUR300 per [metric ton] has come off the price," Associated British Foods CEO George Garfield Weston said on a call with investors.

Sugar production has also expanded inside the European Union as a result of the bloc scrapping limits on sugar beet production and introducing new subsidies to both support farmers and ensure steady supplies of bioethanol.

Associated British Foods' sugar division sees it farm sugar cane in Africa and sell processed sugar in the form of brown and white sugar and also bioethanol in markets worldwide, in what is set to see the segment generate profits worth around GBP200 million ($263 million) this year.

The British company, which was started by Toronto born businessman Willard Garfield Weston in 1935, is a major supplier of sugar to food and drinks manufacturers in its main European markets, the U.K. and Spain. Associated British Foods' current CEO, George G. Weston, is the grandson of the company's founder, W. Garfield Weston.

The London headquartered company said it now expects the ongoing slump in global sugar prices will "significantly impact performance" from its European sugar business in 2025, with profits from the division set to drop to GBP50 million to GBP75 million.

In the full year 2023, Associated British Foods' sugar global business generated GBP2.55 billion ($3.36 billion) in revenue in 2023 and GBP169 million in profits.

Shares in Associated British Foods (UK:ABF), listed on the London Stock Exchange, fell 5% on Thursday having gained 19% over the previous 12 months.

Widespread use of weight-loss drugs including Wegovy and Ozempic is also expected to hit demand for sugar in the future as a result of the ability of GLP-1 agonists to reduce users' appetites and cravings for sweet and sugary products.

In a study of more than 100,000 people from December 2023, users of GLP-1 agonists reported sharp drops in consumption of all groceries, driven by significantly lower consumption of ice cream and sugary snacks.

Associated British Foods, which also owns U.K. clothes seller Primark, said it also expects sales from its retail division to be lower in its upcoming results in November, as a result of poor weather in Britain and Ireland.

-Louis Goss

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09-05-24 0704ET

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