Trade Resources Company News Associated British Foods Looks to Sell Unprofitable Sugar Business in China

Associated British Foods Looks to Sell Unprofitable Sugar Business in China

Associated British Foods (ABF) is reportedly contemplating the sale of its unprofitable sugar business in China to remain focused on its sugar operations in Europe and Africa.

For this purpose, the food company has invited bids for five of its cane sugar mills in southern China and two sugar beet factories in the north-eastern part of the country, sources familiar with the matter told the Financial Times.

The company is expected to raise nearly $1bn from the transaction.

Chinese investors are likely to evince interest in the sale, as they look to invest more funds in Associated British Foods, the Wall Street Journal reported.

ABF has been making many changes to its sugar business, as it saw 90% decline in profits in the past three years due to a fall in world sugar prices.

Due to closure of its two loss-making sugar beet factories in northern China's Heilongjiang province in 2015, the company incurred a net loss to the tune of £116m. However, recently it has stated that cost-cutting had resulted in improved performance.

The sugar unit still recorded strong sales of £1.8bn last year, but remained as the weakest of the group's five core businesses. It earned an operating profit of £43m and a 2.4% profit margin in its previous financial year ending 12 September.

China accounts for 23% of the ABF's sales and it is the smallest of the company's three geographic sugar regions.

Currently, ABF has five cane-sugar mills in southern China's Guangxi Province and two beet-sugar factories in the Northeast of the country. The mills have an annual sugar capacity ofover 800,000 metric tons.

Recently, ABF shifted its focus to the African sugar market. Last month, it bought a minority stake in in South Africa-based Illovo Sugar for £262m.

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