Sudzucker struggles with sugar, but special products deliver

By staff reporter

- Last updated on GMT

Related tags: Profit, Sugar

The Sudzucker group has reported a 18.3 per cent increase in sales
for the first nine months of its year thanks to special products
and fruit preparations, while sugar was responsible for a big drop
in operating profit.

In the 2007/8 year to date, the group has posted revenues of €4.4bn - the same level as it achieved in the whole of 2006/7. Operating profit was €176m, less than half that achieved at the same stage last year. Sugar woes ​ Sudzucker said the drop-off in operating profit was due to lower operating profit in the sugar segment, lack of export volume, plus higher expenses relating to EU restructuring levies. Sugar reported revenues of €2630m for the nine months, down 6 per cent from last year, and operating profit down 82 per cent to €42m. The new EU sugar regime came into effect in 2006, offering compensation to less profitable producers to leave the market with the aim of improving competitiveness and market-orientation of the sugar sector and guarantee its long term future. The goal is to reduce the volume of sugar on the market by 6m tonnes by 2010, but as of last September only 2.2m tonnes had been withdrawn from the market - a shortfall the European Parliament saw as being down to insufficient financial incentives being on the table. It therefore introduced a new package of compensation to further encourage voluntary quota reduction and as a new incentive, beet growers will be allowed to sell 10 per cent of the quota. Moreover, sugar producers who sell that share will receive a refund of the restructuring levy. As for Sudzucker, it has said it "has initiated the necessary steps to contribute approximately 15 per cent or about 610,000 tonnes of its sugar quota to the restructuring fund by January 31 2008."​ This reduction is base d on capacity adjustments in Belgium, Germany, France, Poland and Hungary. The German group said that favourable growing conditions for sugar meant that production at its 39 plants in 2007/8 so far have reached last years levels - in spite of withdrawal of swathes of cultivation areas to meet EU margets. Production came in at 4.6m tonnes, of sugar, including refining. Special products ​The special products segment, which includes functional foods as well as starch and biofuels, reported revenues up around 12 per cent to €1,081m for the nine months. Operating profits were up 13 per cent to €104m. Growth was said mainly to have originated from bioethanol and starch divisions. In late October the company announced the formation of its Beneo division, comprising functional ingredients companies Orafti, Remy and Palatinit. The most positive story comes from the first two quarters of the current year, however. The 2006/7 Q3 was particularly strong, and this year the segment has been affected by commodity price increases, particularly for corn and wheat. To some extend the group has been able to mitigate the effect of these price increases by risk management and the securing of long-term contracts. Moreover, the outlook for the special products as a whole is positive: "In the special products segment Sudzucker expects that it will be able to exceed operating profit year-on-year, since the rise in commodity price (especially for wheat and corn) as well as the elimination of the inulin fructose operations are more than offset by strong organic growth at the Beneo group and bioethanol,"​ said the group. The inulin fructose operations, which last year contributed €58m in revenue, were discontinued in 2006/7. Fruit ​The fruit segment was also affected by commodity costs, but still managed to report results "in line with expectations".​ Revenue for the first nine months of the year were up 10 per cent to €645m (or 6 per cent on a like-for-like basis), and operating profit up 5 per cent to €31m. Both fruit preparations and fruit juice concentrates saw higher sales volumes, thanks to a new global procurement strategy. In addition, Sudzucker's Chinese joint venture in Xiangyanf has been producing at full capacity since August 2007, and its contribution of €6.4m was not included in the prior year period. To mitigate the effects of volatile price fluctuations, the group has negotiated new fixed price periods based on corresponding harvest periods.

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