Significant profit reduction expected
Sugar sector must tighten its belt
All sugar processors in the European Union (EU) will have to tighten their belts next season. This is due to the low European and worldwide market prices. According to some insiders, all factories in Europe should make an effort not to run a loss.
Südzucker, the largest sugar beet processor in Europe, will announce its first profit forecast for the 2018/2019 financial year at the end of March. The group expects to achieve a turnover of €6,8 to €7,1 billion. However, the profit forecast is declining sharply (by €100 to €200 million). With such a result, the sugar segment results in a loss of €100 to €200 million.
The provisional figures for the financial year 2017/2018 (which runs until March 1, 2018) show a turnover of €7 billion, €500 million more than 1 year earlier. The group's net result increases from €426 million to €440 million and the dividend forecast per share remains unchanged at €0,45 per share.
Low sugar prices
Südzucker cites the difficult international sugar market as the direct reason for the lower profit forecast; prices are very low both within the EU and on the world market. Other business units, such as specialty production and energy, are expected to yield a more positive result.
A spokesman for competitor Nordzucker, the number 2 in Europe, tells Reuters that all European sugar producers must make an effort to break even. According to analyst Stefan Uhlenbrock (FO Licht), factories have only looked at the cost side. More hectares of beets and more sugar to cut costs. Due to such increases in production, prices plummet.
Diversification
Many European processors do not know about diversification. Royal Cosun is of course an exception to this. It also shows that a wide range of companies pays off; especially in cooperative form. Associated British Foods, the parent company of British Sugar, for example, has the successful clothing chain Primark in its program. Only 16% of British Foods' profits come from sugar.
Analysts expect that the international sugar market will have to deal with overproduction for at least 2 more seasons. This may last even longer, because significantly more sugar cane is grown in countries such as India and Thailand. In the EU, the sugar beet acreage will remain unchanged this year. The contract prices take little account of the current price level, as a result of which beet growers continue to grow unabated. Moreover, cost-effective alternatives are not available.
Area reduction
It is expected that a correction will be made in the total surface area of sugar beet in 2019, that is, when contract prices start to decrease after a year of low sugar prices. As a result, exports increase sharply; from 1,38 million tons in 2017/2018 to 3,5 million tons in the coming marketing year. That's what the Australian analyst firm Green Pool thinks.
The global sugar trade surplus is estimated to decrease from 11,51 to 5,95 million tons. An additional problem, in the EU, is the decline in sugar consumption. This is in line with healthier eating. A sugar tax will come into effect in the United Kingdom on Friday 6 April.
Storage arrangement
Earlier, European Commissioner Phil Hogan decided that no private storage scheme for sugar would be created. A source from the European Commission tells Reuters that Brussels is following developments closely. However, there are no plans to regulate the market.
Niels van der Boom
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