Suedzucker expects benefits from sugar reform concessions

By Jess Halliday

- Last updated on GMT

Related tags Cent European union European parliament Council of the european union Eu

Suedzucker has adjusted its profit and revenue expectations for
full year 2007/8 following EU moves to make sugar reform more
attractive to growers, indicating that the industry efforts to
lessen the blow for the industry could be effective.

The German group has reported a massive dip in operating profit for the six month period to €120m, from €250m last year, and a three per cent drop in revenue to €2.8bn.

These figures were attributed to the sugar segment, which was hit by missing exports and charges relating to EU restructuring.

However Suedzucker expects that EU council of ministers' move on September 26 to make it more attractive to producers to give up their sugar quotas in order to meet reform targets will have a positive effect on its full year results.

It said last week that expects revenue to be between €5.2bn and €5.4bn, and operating profit to be at least €210bn.

Although these figures are lower than last year's equivalents (€5.8bn and €419m respectively), they do bear out a positive impact of the ministers' measures.

Sugar reform was introduced in Europe in 2006 with the aim of improving competitiveness and market-orientation of the EU sugar sector and guarantee its long term future.

Under the programme, financial incentives are offered to the less competitive producers to leave the market.

The goal is to reduce the volume of sugar on the market by six million tonnes by 2010.

However so far only 2.2 million tonnes have been withdrawn from the market - a shortfall the European Parliament sees as being down to insufficient financial incentives being on the table.

In an effort to speed up the process, at the end of last month agriculture ministers agreed on a package of new measures.

These include sugar producers receiving 90 per cent of the restructuring assistance of €625 per sugar quota tonne; and an exemption from restructuring payments of at last €173.80 per tonne when they renounce quotas by at least the amount for preventative withdrawal in 2007/8.

"In combination with each grower's new right to sell up to 10 per cent of the producer's quota to the restructuring fund, the higher payments should result in higher quota surrender throughout the entire EU," said the company.

A two-step procedure was also agreed for surrendering quotas in 2008/9.

Those companies that have surrendered quotas to at least the level of preventative withdrawal for 2007/8 marketing year by January 31 2008 will have the right, until March 31 2008, to be compensated for surrendering additional quotas for 2008/9.

Suedzucker's preventative withdrawal amounts to around 13 per cent, or around 530,000 tonnes.

It expects that it will have to withdraw at least a further seven per cent by the end of October.

For the company, sugar revenues for the first half of the year were down 11 per cent to €1.69bn, and operating profits down a massive 82 per cent to €32m.

To some extent the group's grim picture was compensated by strong results for its special products and fruit segments.

Despite exiting the inulin fructose market in 2006/7, the special products division, which includes bioethanol and starch, posted €708.2m in revenues - up from €652.9m. Operating profit rose 30.1 per cent to €70.1m.

While a number of ingredients firms have reported severe effects of dramatically rising raw material costs, so far Suedzucker says it has been immune as existing contracts are worked out.

In the fruit segment, the group has reported revenues up 14 per cent to €435.1m for the half year, and operating profit up 8.7 per cent to €18.7m.

The fruit juice concentrate division's revenue was said to have benefited from higher sales of fruit puree, and fruit juice concentrates made from red fruit.

Sales of apple juice were said to be higher than last year, and new contracts were signed at a higher price.

In Q2 the company consolidated its 50 per cent share ownership of Chinese company Xiangyang Andre Juice company, which contributed €5.4m to revenues.

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