Sugar division will go from drags to riches

Associated British Foods' (ABF's) sugar division should go from profit drag to growth driver in the next couple of years, according to City analysts.

In a report assessing ABF's prospects, Panmure Gordon analysts said the company could expect operating profit growth in sugar of 50% between 2008 and 2011. This marked a substantial change from an estimated £95M decline in ABF's EU sugar profits in the 2005-2009 period. The increase could be attributed to the fact that two thirds of ABF's sugar production was now in emerging markets and the EU market was about to be opened up to imports from less developed countries.

However, Panmure Gordon said profit progress in ABF's grocery division was held back by raw material cost inflation, one-off integration costs following the recent acquisition of Patak's, and the weakness of the US dollar.

While ABF-owned Allied Bakeries' bottom line had been hit by rocketing wheat prices, losses were likely to drop from an estimated £30M last year to £20M in 2008, the analysts added.

Production at ABF's pan-Oriental brand Blue Dragon is being moved from Wales to Poland. The business, which is being integrated with Patak's to form a new World Foods arm, was likely to boost growth in ABF's grocery arm, predicted analysts.