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Sugar market caution sends Suedzucker shares lower, 16.01.15

Shares in Suedzucker tumbled after it warned that a slump in sugar earnings was, besides threatening its ability to meet profits targets for this financial year, to "weigh heavily" on next year's performance too.

Suedzucker, Europe's largest sugar producer, said that while it was sticking by its guidance for sales of E7.0bn for the year to the end of February, a drop of 7%, it faced a "challenge" to meet a target of E200m in operating profits – a drop of 62% year on year.

The difficulty reflected setbacks in Europe's sugar sector, where the prospect of the end of production quotas in 2017 has spurred a particularly strong fall in prices, and in ethanol, of which EU consumption is falling, dented by declines in overall gasoline use.

"From today's perspective, we expect that [the] continuously difficult economic environment in the European sugar and ethanol markets will not only negatively impact fiscal 2014-15, but also weigh heavily on fiscal 2015-16 results," the German-based group said.

'Continuing deterioration'

Suedzucker revealed that its sugar division had fallen into a E24m operating loss in the September-to-November period - compared with a E23m profit in the previous quarter, and a E117m profit a year before – and signalled further losses ahead.

A forecast of operating profits coming in at E10m-40m for the full financial year implies a loss of E4m-34m in the current, December-to-February quarter.

"Lower prices continue to weigh on the sugar segment," the group said, a factor also highlighted by rivals such as Associated British Foods, which has highlighted the rise in competition, and in buyers' market power, even in the run-up to the EU's abolition of production quotas.

Suedzucker also flagged a "continuing deterioration in the business situation in the EU sugar market".

'Very low prices'

The group's majority-owned ethanol business, listed separately as CropEnergies, contributed an operating loss of E2m in the latest quarter, compared with a profit of E12m a year before, reflecting the "very low" prices of the biofuel in Europe.

"Higher volumes and declining raw material costs were not enough to completely offset" the dent from a drop in prices to E477 per cubic metre as of the end of November, down from E514 at the start of the quarter.

However, Suedzucker reported an increase of 13.8%, to E45m, in operating profits at its special products division in the latest quarter, and of 4.5% to E16m in the result in fruit, helped by a dent to raw material costs from "excellent" European apple and berry harvests.

Prices of apples, which have also been undermined in eastern Europe by Russia's ban on agricultural imports from the EU, "collapsed".

Shares drop

Suedzucker reported a tumble of 84% to E27m in group operating profit for the September-to-November period, on revenues down 9.4% at E1.75bn.

Both figures fell short of market expectations, pitched at E28.4m and E1.76bn respectively.

Suedzucker shares stood 4.9% lower at E10.61 in lunchtime deals in Frankfurt.

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