Interim report first quarter 2004/05
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This interim report provides you with information on the way business has developed in the first three months of the current financial year 2004/2005 (March to May 2004).
At its meeting on 14 July 2004, the EU Commission approved the memorandum on the reform of the ZMO European Sugar Market Regulations and passed this on to the Council of Ministers, who will debate it at their meeting on 19/20 July 2004.The Commission's suggestion assumes quota reductions of 16%, lowering of the intervention price for sugar by 33% and curtailing the price of beet by some 43% before the envisaged compensation levels. It is questionable whether the Council of Ministers will accept these proposals, as this concept would result in beet plantations being discontinued in many regions of the EU (especially in the south, north and to some extent, as well as in eastern Europe).
Südzucker has always been, and remains, opposed to non-solidary proposals that would, in many rural areas of Europe, result in enormous job losses and drastic losses of income. In case of an implementation of these proposals, it will be of crucial importance for production to take place Europe´s best suited beet cultivation areas. In this case, Südzucker will have to make maximum use of its competitive advantages arising from its locations and will have to adopt further measures to defend its profitability. With the investment offensive introduced in the Functional Food, Bioethanol and Fruit Juice Concentrates and Fruit Preparations divisions, Südzucker will also be extending its growing speciality business, which is unaffected by the market regulations.
Change in sales
Group sales remained stable in the first three months of the financial year 2004/05 at EUR1,125 (1,124)* million.
In the Sugar segment, sales rose by 0.6% to EUR816 (811) million. Results achieved in this way more than compensated for the drop in western Europe due to the poor harvest in 2003 that was caused by the effects of the weather, thanks to the addition of the Silesian sugar businesses. The positive effect of the accession of the Eastern European states into the EU on 1 May 2004 will accelerate during the financial year; however, as at the reference date at the end of the quarter on 31 May 2004, it has not yet been possible for any significant effects from the change in the peripheral conditions to have manifested themselves.
The successful development of our Specialities segment is not reflected in the slight fall in sales in the first quarter, down EUR1.4% to 310 (314) million. The reason for this is the adjustment of the financial year of Freiberger applied the previous year, in line with the Südzucker financial year. This meant that in the first quarter of the previous year Freiberger was included in accounts for five months instead of three. Adjusted to this special effect, we now find a distinct rise in sales of just under 10 % for this segment, based to a large degree on the steady growth of Functional Food products and growth at Freiberger.
In the first three months of the financial year 2004/05, the Group's operating profits rose to EUR 122 (114) million, lifting operating margin to 10.8 (10.1)%.
The rise in operating profit in the Sugar segment to EUR84 (75) million is mainly attributable to the Eastern European sugar companies.
The operating profit of EUR38 (39) million in the Specialities segment is not directly comparable with the figures for the previous year due to the special effect represented by Freiberger. Here, too, there is a distinct improvement in profits on comparable basis, attributable to Functional Food and Freiberger. It has been possible to produce another slight increase in the already excellent operating margin, bringing it up to 12.4 (12.3)%.
The financial year 2004/05 will be positively affected in terms of sales and operating profits by the accession of the 10 new EU countries on 1 May and the continuing growth in the Specialities division.
Südzucker is even better represented in the acceding countries than in the previous EU, and as a result has further extended its leading position in Europe. The distinctly positive effect on profits resulting from the extension of the EU will be the more visible over the next three quarters of the current financial year. This will more than compensate the downturn in western Europe after the poor harvest in 2003.In the Specialities segment we are assuming continued growth in Functional Food and at Freiberger, as well as positive contributions to profits from the ongoing extension of the Fruit Juice Concentrates and Fruit Preparations divisions. The distinct contribution to profits that we are anticipating from our continued investments in the Functional Food, Bioethanol and Fruit divisions will begin to appear from 2005/06 onwards.
Overall, in 2004/05 we are anticipating a clear increase in operating profits and, as a result, a continuation of the growth trend recorded in previous years.
The Executive Board