INTERIM REPORT 3rd Quarter Financial Year 2004/05, 1st March to 30 November 2004
The complete report you find in the Download area.
With this interim report we wish to inform you about the way business has developed in the first nine months of the current 2004/05 financial year (March to November 2004).
The reform of the European sugar market regulation remains controversial. The debate within the Council of Agricultural Ministers has made it clear that the Commission will not secure a majority for its proposal submitted to the Council in July 2004. Ten EU member states from Southern, Northern and Eastern Europe, whose sugar industry is threatened by the reform, have informed Mrs. Else Mariann Fischer Boel, the new EU Commissioner for Agriculture in office since 23 November 2004, that they reject the proposal.
The concrete mechanisms for the reform of the agricultural sector are currently being negotiated in the present Doha Round. The aim is to reach a consensus before the next WTO Summit in December 2005 in Hong Kong.
The WTO panel's ruling against the European Union's sugar policy was published in October 2004. This would have far-reaching consequences for sugar production in the EU. The EU has announced its intention to appeal against the decision.
In Germany, the Sugar Beet Growers Federation (ADR), the German Farmers' Federation (DBV), the Food, Beverages and Catering Industry Trade Union (NGG) and the Sugar Industry Association (WVZ) have, in close cooperation, launched the "existenzfrage-zucker« initiative to draw attention to the dangers of an exaggerated reform of the European sugar market regulation for production in Germany.
In principle, we recognize the need to discuss a reform of the sugar market regulation. The Commission's proposals and the political discussions in the past months have demonstrated that there is the political resolve to strengthen the competitiveness of beet sugar production in the EU and to provide efficient producers with a long-term perspective for the future. This confirms us in our strategy of focusing on the best beet-growing regions. However, we call on the EU Commission to formulate its legislative proposals and to pursue the negotiations at the international level in a way that will enable the declared goals to be achieved.
The EU-Commission has announced that it intends to table these proposals in the summer of 2005 when the sugar panel's ruling on the appeal is known.
Sugar production in 2004
After a good growing season with sufficient rainfall Südzucker Group's beet growers harvested 31.0 million tonnes of sugar beet, an increase of 16.1% versus the 26.7 million tonnes harvested in the previous year. In an efficient campaign beet sugar production was increased to 4.8 (4.2) *) million tonnes. Energy consumption per tonne of sugar produced was reduced once again. Including the refining of cane sugar at the refineries in Marseille, France, and Buzau, Romania, Südzucker Group's total output came to 5.1 (4.4) million tonnes of sugar, with the subsidiaries in Eastern Europe accounting for 21.5%.
Refining capacities could be utilized over a longer period, with the campaign lasting an average of 91 days as compared with 75 days in the previous year. At the same time the number of production sites was reduced to 45 compared to 52 in the 2003 campaign. In the past campaign Südzucker therefore demonstrated that its concentration on Europe's best beet-growing regions is the right strategy. In the course of the forthcoming reforms Südzucker will exploit the competitive advantages afforded by its locations and will take further steps to defend the profitability of its sugar business.
Investments in functional food, bioethanol and fruit
With the investments launched in the functional food, bioethanol and fruit additives/fruit juice concentrates businesses we are also expanding our growing specialities segment. In the functional food business the expansion of capacities at Palatinit in Offstein and the construction of a new Orafti production facility in Chile are proceeding according to plan. This will enable us to meet the continued strong growth in demand.
The bioethanol plant in Zeitz will be coming on stream in spring 2005 with a capacity of 260,000 m³. The market for energy from renewable sources will witness substantial growth in the coming years. In the Kyoto Protocol the EU has pledged to reduce carbon dioxide emissions. In order to deliver on this commitment it intends to boost the share of biofuels in total fuel consumption to 5.75 % by the year 2010. This corresponds to an EU market volume of between 8 and 10 million m³ for bioethanol as a fuel component.
Following approval by the antitrust authorities AGRANA acquired the Bingen-based Wink Group on 3 January 2005. With sales of approximately EUR 44 million and 200 employees, Wink is one of the leading fruit juice concentrate producers in Europe and operates four plants, with two in Hungary and one each in Poland and Romania. The head office, with the administration and central logistics operations, is in Bingen. Following the acquisition of Vallo Saft of Denmark the year before, this latest acquisition makes the company the market leader for fruit juice concentrates in Europe.
The recent takeovers in the European pizza and baguette business highlight the attractiveness of this market segment. These deals are focused on the branded products segment. Freiberger, whose business concentrates on private-label products, continues to hold a leading position in Europe unaffected by these developments.
After divesting with 15% of the original 25% stake in KWS Saat AG two years ago, the remaining 10% was sold in December 2004 mainly to institutional investors in a placement managed on a bookbuilding basis. With this divestment, Südzucker is continuing to focus on investments over which strategic influence can be exercised. The Federal Cartel Office had refused to sanction a stronger equity and corporate interest in KWS. The divestment will not affect the traditionally good and fruitful cooperation between Südzucker and KWS.
In the first nine months of the 2004/05 financial year Group sales were up by EUR 137 million, or 4.0%, to EUR 3,608 (3,471) million.
Sales in the Sugar segment were up by EUR 32 million to EUR 2,612 (2,580) million. A decline of EUR 68 million in the West European sugar business was due to the low level of sugar production in the 2003 campaign, with the result that less sugar was available for export. A different picture was presented by our sugar operations in Eastern Europe, where the accession to the EU as of 1 May 2004 brought the expected strong boost to sales. With growth of EUR 100 million, this more than offset the sales decline in the West European region.
The sales growth of 11.8% to EUR 996 (891) million reported for our Special Products segment was influenced as well by two counteracting special effects. On the one hand, Freiberger had been included in the year-earlier figure for 11 instead of 9 months owing to the adjustment of its financial year. On the other hand, sales have been boosted in the current year as Steirerobst in the fruit business and Stateside in the pizza business were fully consolidated for the first time.
Group operating profit in the first nine months was up by 10.6% to EUR 408 (369) million; the operating margin rose to 11.3 (10.6)%.
In the Sugar segment profits were up by 11.9% to EUR 288 (258) million, boosted by the entry of the East European sugar companies into the EU. Earnings performance in Western Europe was held back by lower exports and poorer conditions for export refunds.
The Special Products segment, where operating profit was up by 7.5% to EUR 120 (111) million, outperformed the Sugar segment with an operating margin of 12.0%. This development was driven primarily by the continued fast-growing functional food business, but also by the starch business, which profited from declining corn prices.
The overall growth of 10.6% in operating profit in the first nine months was mainly influenced in the Sugar segment by the East European countries' entry into the EU. Set against this, there are burdens from rising commodity prices, especially for oil, coal and coke, and the weakness of the US dollar, which affects our revenues from sugar exports.
In the Special Products segment the growth trend in the functional food and starch businesses looks set to continue. Combined with the positive effects from the first-time consolidation of Steirerobst and Stateside, we expect the growth in sales and operating profit to be in the double digits. The growth in sales and profits from our investments in the functional food, bioethanol and fruit businesses will continue at an even faster pace in the coming financial year.
At the Südzucker Group level we expect sales growth of approximately 7% for the 2004/05 financial year and a similar increase in operating profit.
The Executive Board