ABF's African sugar offer shows global vision

By Anthony Fletcher

- Last updated on GMT

Related tags: Eu sugar regime, Africa, Sugar, European union

ABF's offer to acquire 51 per cent of Illovo, Africa's largest
sugar producer, underlines how the new EU sugar regime has forced
European sugar producers to think truly globally.

Indeed the move is highly strategic, and underlines ABF's ambitious plans to remain highly visible in the sugar industry following the introduction of tough new laws.

The UK-based international food, ingredients and retail group said that the cash consideration of 317m (R3.8bn) would be paid from existing resources and banking facilities on completion.

This offer is subject to regulatory approvals, Illovo shareholder approval and Court sanction of the scheme of arrangement.

ABF says it will support Illovos stated plans for capacity expansion and development in its African markets. It is expected that Illovo will benefit from the application of ABF subsidiary British Sugars proven expertise in improvement in operational efficiencies, co-product development, marketing and product innovation.

In turn, British Sugars Chinese cane sugar operations will benefit from Illovos agricultural expertise.

The changes to the EU sugar regime will provide free access for exports to the EU from Least Developed Countries (LDCs) from 2009. The LDC classification includes Malawi, Zambia, Tanzania and Mozambique.

British Sugar will provide an efficient route to market for these exports from Illovo.

In the first full year after acquisition the operating profit return is expected to meet the ABF cost of capital, and will be earnings enhancing.

"The combination of British Sugar and Illovo will create a powerful partnership in Africa and Europe,"​ said George Weston, ABF chief executive.

"Illovo has strong positions in its African markets, an excellent management team and the opportunity to benefit from free access for exports from its LDC operations to the EU from 2009. There is considerable scope to develop Illovo through British Sugars market and technical expertise."

Don MacLeod, managing director of Illovo, said that both Illovo and British Sugar are long term players in the sugar industry with significant complementaryStrengths.

"Illovo will benefit from British Sugars knowledge of the European market particularly once its operations in LDC countries receive unrestricted access into the EU from 2009,"​ he said.

"It is anticipated that there is good scope for technology transfer between the two parties."

Illovo is listed on the JSE Limited (JSE). In the year ended 31 March 2006 its revenue was £ 458m (R5.5bn), it generated a profit before taxation and material items of £ 54m (R651m) and headline earnings of £ 29m (R352m). At 31 March 2006 it had gross assets of £ 333m (R4.0bn).

The company is the largest cane sugar producer in Africa and one of the worlds lowest cost producers. It is the leading producer in South Africa, Malawi, Zambia and Swaziland and has a strong and growing presence in Tanzania and Mozambique.

It produced 1.9 million tonnes of sugar in 2005/6 and has identified development programmes to expand this capacity substantially.

British Sugar is a substantial and core business within ABF. It has sugar operations in the UK, Poland and China, processing around 2 million tonnes of sugar annually, and is the lowest cost beet sugar processor in the EU.

Associated British Foods (ABF) is a diversified international food, ingredients and retail group with global sales of £ 5.6bn and over 42,000 employees. It is listed on the London Stock Exchange with a market capitalisation of £ 6bn.

Related topics: Market Trends

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