Südzucker holds dividend
Südzucker was once again able to increase group revenues in 2006/07. They grew by some 8 % to EUR 5.8 billion (EUR 5.3 billion). This growth originated in the special products and fruit segments, whereby the sugar segment was already affected by restrictions arising from the new EU sugar market regulation. For instance, sales opportunities outside the EU have already been extensively capped, the EU market has been opened up to imports, but production capacity within the EU has not yet been sufficiently adjusted to meet reduced marketing opportunities. In particular, the French subsidiary Saint Louis Sucre, for which exports have to date made up a high proportion of overall sales quantities, was negatively affected by these development. This has led to goodwill impairment losses of EUR 0.5 billion in the sugar segment, overshadowing the otherwise stable level of profitability in 2006/07 and leading to an overall group loss of some EUR 0.2 billion. Nevertheless, the group»s operating profit amounted to EUR 419 million (EUR 450 million) and gross cash flow from operations increased to EUR 554 million (EUR 527 million).
The executive board and supervisory board will therefore recommend an unchanged dividend of EUR 0.55 per share to the annual general meeting on 24 July 2007. The dividend recommendation reflects an operating profit only slightly lower than for the previous year, higher cash flow and belief in a return to higher profitability by the sugar segment over the medium term.
However, 2006 also saw the successful IPO of Südzucker»s bioethanol activities. CropEnergies AG, in which Südzucker is a majority shareholder with 70.6 % after the IPO, grew satisfactorily and distanced itself from market disruptions in the bio-diesel sector thanks to its correct concentration on bioethanol. With the production of bioethanol for fuel, Südzucker has become a player on a market which, to date, had mainly been occupied by international groups.
Special products and fruit segments make up nearly 40 % of total revenues
With EUR 3,543 million (EUR 3,666 million), the sugar segment contributed 61 % of total group sales of EUR 5,765 million (EUR 5,347 million). Turnover in the sugar segment decreased by 3.4 %, particularly due to the drastic reduction in quota sugar exports caused by the extremely restrictive export policies of the EU commission. Together with a repeated rise in energy prices and charges arising from the first-time restructuring levy, this caused operating profit for the sugar segment to decrease by EUR 54 million, from EUR 313 million in 2005/06 to EUR 259 million in 2006/07.
Revenues from the special products segment increased by 14.8 %, or EUR 169 million, to EUR 1,308 million (EUR 1,139 million) and thus already make up 23 % of group revenues. In the bioethanol division, CropEnergies group could more than double revenues to EUR 147 million (EUR 60 million). The functional food division attained double-digit growth in sales quantities with Palatinit, ORAFTI and rice ingredients. However, total sales in monetary terms were only slightly above those for the previous year due to closure of inulin fructose production in Belgium. The Freiberger, Starch and PortionPack divisions were able to maintain or expand their positions in highly competitive markets. Operating profit of the special products segment exceeded the previous year to reach EUR 115 million (EUR 109 million), with positive effects from closure of inulin fructose production. The bioethanol business could achieve a clear improvement in operating profit to EUR 21 million and an operating margin of 14.3 %.
The strongest growth came from the fruit segment, contributing 16 % or EUR 915 million (EUR 541 million) to group revenues. Excluding growth in revenues caused by consolidation and the change in financial year, these figures show strong organic revenue growth. This is also reflected in operating profits, which rose by EUR 19 million to EUR 46 million (EUR 27 million). Contributions included growth particularly in Russia and the USA, countries in which new production locations were established in the previous year.
Goodwill impairment loss
The current picture of Südzucker Group is influenced to a great extent by uneasy times in the sugar area. The sugar market reform and the ongoing restructuring process of adjusting production capacities remained unavoidable in the sugar segment. There were charges of EUR 109 million in 2006/07, mainly from the agreed closure of the cane sugar refining in Marseilles and a Polish factory. The French sugar market, whose quota sugar production was sharply above domestic consumption, was particularly negatively affected by reform of the sugar market regulation. The structural production excess led to dramatic price competition. Südzucker has reflected this by goodwill impairment losses in the sugar segment of EUR 482 million. Overall the group loss for the year was EUR 246 million compared with group net earnings for 2005/06 of EUR 305 million.
Net financial debt down by 30 %
Despite the high restructuring expenses and with no effects from goodwill impairment losses, gross cash flow from operating activities increased to EUR 554 million after EUR 527 million in 2005/06. Cash inflows of EUR 865 million (2005/06: EUR 313 million) could be achieved from gross cash flow from operating activities and the reduction in working capital. Gross cash receipts of EUR 200 million were achieved from the CropEnergies AG IPO, net financial debt could be decreased by EUR 366 million from EUR 1,177 million to EUR 811 million at 28 February 2007. Even after considering goodwill impairment losses of EUR 580 million, balance sheet ratios show a sound gearing ratio of 42 % compared with 47 % at the end of the previous year.
Südzucker Group broadly based
The executive board continues to believe that, especially due to the dramatic effects of the new sugar market regulation on many EU sugar companies, new opportunities can arise for Südzucker Group as market leader. Südzucker also continues to believe that, following a reduction of capacity in the EU and a fair treatment of sugar imports by the EU, price pressures will retreat again and lead to market stability. Apart from the resulting production restrictions, Südzucker also sees an opportunity to optimise efficiency and structure in the sugar beet farming and sugar production sectors more rapidly and encourage market stature and profitability through international co-operation. However, the primary aim remains to rigorously optimise the conditions for achieving further synergy potential throughout the group.
The successes achieved in the special products and fruit segments show that Südzucker is making great strides to meeting its aim of finding new dynamically-growing business activities for the group. This applies not only to the position in the renewable raw materials area, which Südzucker wishes to further extend and for which it reviews many projects for their chances of success. With the fruit segment, the group has entered an expanding global market and is extending its presence in the new emerging markets. The rapid growth in demand for chilled and deep-frozen pizzas, in which the group is European market leader, shows the correctness of our assessment of the growth potential of this market. Success factors here are particularly our uncompromising quality and customer focus.
Based on the above, it is clear that Südzucker Group is broadly based and, following a difficult transitional phase, it is expected that group operating income will improve in the medium term due to capital expenditures in the growth markets of bioethanol, functional food and fruit.