Last updated: April 8, 2014 10:36 pm

Südzucker profit warning as European market slides

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Südzucker blamed a further “deterioration” in the European sugar and ethanol markets for a severe profits warning that saw a fifth sliced from its market valuation and its share price drop to a three-and-a-half year low.

Shares in Europe’s biggest sugar producer slumped 20.7 per cent to €16.21 on news that operating profit in the year to February 2015 would fall by 70 per cent to about €200m – less than half the figure expected by analysts.

The €3.3bn German group said previous warnings of deteriorating fundamentals in European sugar and biofuels markets had been “confirmed and reinforced” and there was no guarantee of meeting revised earning guidance.

“Achievement of this forecast will mainly depend on further marketing results and sales volumes in an increasing difficult European sugar market,” Südzucker said in a statement.

World sugar prices have fallen steadily during the past two-and-a-half years due to a series of bumper crops, while a drop in gain prices has weighed on European bioethanol prices.

European sugar prices, which are almost double world prices, have also started to weaken as the market prepares for the abolition of European Union sugar quotas in 2017. The EU has also authorised more sugar imports in an attempt to increase stockpiles.

Analysts reckon European sugar is currently trading as low as €450 a tonne in the spot market. To put that figure in perspective, the last pricing round for annual contracts achieved a price of €630 a tonne.

“The EU sugar market is in structural decline and Südzucker has few levers to pull,” said Liam Rowley, an analyst at Barclays. “In our view there is still an unsustainably large gap between EU and world prices.”

In light of the changes in European sugar policy, Südzucker said it was reviewing its “cost structures”, adding that it did not expect the EU to take further action to increase sugar stockpiles.

“The magnitude of the expected profit decline is materially greater than we had forecast,” said an analyst at Goldman Sachs. “This suggests European sugar prices will be lower than our estimate of €650 a tonne in the sugar marketing year of 2014-15.”

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