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ABF sells Polish sugar business in advance of EU rule change

By Guy Montague-Jones , 12-Aug-2009

Associated British Foods (ABF) has sold its Polish sugar business to Pfeifer & Langen for an estimated £120 to £130m in preparation for the opening up of EU sugar trade.

The international ingredients supplier and owner of clothes retailer Primark is selling British Sugar Overseas (BSO) Poland just a few months after buying Azucarera Ebro, the biggest sugar producer in Spain.

“Good strategic sense”

Cazenove food analyst Polly Barclay said the deals make “good strategic sense” in view of upcoming changes to EU trade law.

“Azucarera Ebro is much better positioned for the import of LDC (least developed countries) sugar into the EU, which will be permitted from October 2009,” said Barclay in a note to investors.

ABF did not reveal how much BSO Poland was sold for but Barclay estimates that the price could be between £120 to £130m (€139 to €151).

The Polish sugar business produces over 150,000 tonnes of sugar and has gross assets totaling £200m, according to ABF. Barclay estimates that its sales add up to £100m and its EBIT £18m.

ABF said the sale also reflects a broader strategy of focusing on markets where it can develop a leading position and avoid excess costs.

“Our market-leading positions with British Sugar in the UK and Azucarera Ebro in Iberia combine to give us a strong presence in the rapidly-consolidating EU sugar market,” said CEO George Weston.

Debt burden

Following the acquisition of Azucarera Ebro in April, ABF, which is still rated at ‘underperform’ by Barclay, faced a higher debt burden that the sale of BSO Poland will ease. But, the company still expects interest repayments to be a burden on profits in its full year financial results.

“We still expect little change in earnings for the full year as the increase in operating profit will be broadly offset by a higher interest charge,” stated ABF in its interim statement for the 40 weeks to 20 June.

BSO Poland is leaving ABF after being of subsidiary British Sugar since the fall of the Soviet Union.

The Polish business was formed in 1989 when British Sugar acquired an interest in two state-owned sugar factories. The business has grown since then having operated as many as ten factories which have now been integrated into a single efficient manufacturing facility at Glinojeck.

Completion of the sale of BSO Poland is subject to regulatory approval which is expected in late 2009.

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