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Mannheim, 2008-05-28

Südzucker forecasts substantial operating profit improvement for 2009/10

In 2007/08, developments at Südzucker Group were largely shaped by turbulence in the agricultural markets. Group revenues remained steady at EUR 5.8 billion, the same level as last year, thanks to growth in the special product segment. However, group operating profit fell by 44 % to EUR 233 (last year: 419) million as a result of the transition phase following the reform of the EU sugar market regulation.

Mannheim, 2008-05-28

Südzucker forecasts substantial operating profit improvement for 2009/10

In 2007/08, developments at Südzucker Group were largely shaped by turbulence in the agricultural markets. Group revenues remained steady at EUR 5.8 billion, the same level as last year, thanks to growth in the special product segment. However, group operating profit fell by 44 % to EUR 233 (last year: 419) million as a result of the transition phase following the reform of the EU sugar market regulation. This slump is primarily attributable to the sugar segment, where operating profit slid 77 percent to EUR 61 (last year: 259) million. The special product segment was able to substantially improve its operating profit, which ended at EUR 129 (last year: 115) million, as was the fruit segment, which posted an adjusted operating profit of EUR 44 (last year: 40) million.
The group's net earnings reached EUR 100 million compared to last year's overall group loss of EUR 246 million, which had been the result of goodwill impairments. Earnings per share were EUR 0.10 (last year: -1.72). Cash flow came in at EUR 498 (last year: 554) million, while capital expenditures ended at EUR 550 (last year: 599) million. The balance sheet continues to be solid and the equity ratio unchanged at 42 percent.
The executive and supervisory boards will recommend to the annual general meeting on July 29, 2008 that a dividend of EUR 0.40 (last year 0.55) per share be distributed, representing a payout of EUR 75.7 million.
Sugar segment - new EU market regulation weighs on profits
While revenues declined slightly to EUR 3,464 (last year: 3,543) million, operating profit dropped 77 % to EUR 61 (last year: 259) million. The decline was caused by the restructuring phase of the new sugar market regulation, which is not yet over, missing C-sugar exports, which are now prohibited, and other charges related to the market regulation. Almost the same amount of sugar, 4.58 (last year: 4.60) million tonnes, was produced at the company's 39 sugar factories and two refineries as last year.
Special product segment - double-digit revenue and earnings growth
The 12 % growth in revenues to EUR 1,463 (last year: 1,308) million and the 13 % operating profit improvement to EUR 129 million were primarily driven by the bioethanol, starch and Beneo divisions. The group's in-house research and development team released innovations that contributed to the market growth, particularly in the functional food division.
Fruit segment - successful despite soaring commodity prices
This division's results do not accurately reflect actual growth, since the prior financial year is based on 14 months (fiscal year-end shifted). On a 12-month adjusted basis, revenues were up 9 % to EUR 853 million (last year: 781) and operating profit rose 8 % to EUR 44 (last year: 40) million. Thanks to steady organic growth, the business unit was able to build on its strong market position, particularly in key markets of the future.
Forecast for 2008/09 still restrained, but outlook for 2009/10 positive
For the current 2008/09 financial year, the group expects revenues and operating profit to remain at a level similar to last year due to the ongoing restructuring phase in the sugar market. However, Südzucker is forecasting that operating profit will improve to at least EUR 400 million as early as 2009/10, and that all segments will contribute to this growth.
Südzucker participates in EU quota returns
As the European market leader in the sugar segment, Südzucker has sent a clear signal to the European sugar business with its participation in the EU quota repurchase program. The company chose this route after quota returns fell short of the EU's specified target of about six million tonnes of sugar and the EU announced that it would - without financial compensation - withdraw the quotas remaining in 2010, regardless of the amount outstanding. The choice was made easier after the EU agricultural ministry improved the 2006 sugar market reforms in fall 2007 and created significant incentives for beet growers and the sugar industry. The quota returns program for the 2008/09 sugar year was divided into two "waves". The first wave consisted of a voluntary quota surrender to the end of January 2008 in the amount of at least the preventive market withdrawal for the 2007/08 sugar year, which was 13.5 %. Südzucker took advantage of this ruling and instituted a group-wide return of 0.61 million tonnes of sugar quota to the fund during the first wave. After the commission published a total of the quotas surrendered during this wave, the company was able to establish the amount it would surrender in the second wave, which was a group-wide total of 0.26 million tonnes. In total, Südzucker Group gave back about 0.87 tonnes, or about 21 percent of the quota. One way the company intends to address the associated elimination of quota sugar is by expanding its industrial sugar business, which is primarily sugar for the chemical industry. This quota return means the non-compensated quota reductions expected for Südzucker and beet growers for the 2010/11 sugar year will be largely avoided, since 5.64 million tonnes of the total six million tonnes of returned quota sought for the EU market have now already been surrendered.
Südzucker continues to stand behind bioethanol commitment
Biofuels are currently being discussed by a wide variety of interested parties, and a leading question is whether or not the manufacture of bioethanol is responsible for rising grain prices. In reality, less than 1 % of Europe's grain harvest was used to produce bioethanol. Furthermore, in factories such as Zeitz, one-third of the grain processed is returned to farmers to be used as animal feed. The fact is, existing fossil energy sources are finite, energy consumption around the world is rising dramatically and there are no alternatives to renewable energy sources. Südzucker sees itself as Europe's competitive market leader, based on its highly efficient factory in Zeitz, Germany, and the new energy technologies being installed at the plant currently under construction in Wanze, Belgium. It will take years for other technologies to become mature enough to reach the manufacturing stage.