Suedzucker shares plunge on 'huge' profit warning

Shares in Suedzucker plunged 20% to their lowest since 2010 after the group, Europe's largest sugar producer, warned of a further decline in profits, undermined by difficulties in the market for the sweetener, as well as for ethanol.

The German-based group said that its operating profits fell by 32% to E658m in the year to the end of February, on revenues down 1.8% at E7.74bn, blaming lower earnings in sugar and at ethanol producer CropEnergies, which it controls.

And it forecast a further decline in operating profits to E200m in the year which started at the beginning of last month, less than half the E558m that analysts has pencilled in, and on revenues seen falling further 10% or so to E7.0bn.

"The expectation of an increasingly deteriorating economic environment in the European sugar and bioethanol markets… has been confirmed and reinforced," Suedzucker said.

The profit warning was termed "huge" by broker Panmure Gordon.

'Difficult time'

In sugar, in which Suedzucker flagged an "increasingly more difficult European sugar market environment", prices have been undermined by increased imports and by the prospect of an end to quotas in 2017.

Rival sugar producer Associated British Foods, behind the UK's Silver Spoon brand, has also highlighted the greater competition being fostered by the deregulation and, indeed, its shares suffered too on Tuesday, falling 3.8% to 2648p in lunchtime deals in London.

In ethanol, the market headwinds were highlighted separately by CropEnergies, 76% owned by Suedzucker, and which said that it could fall into an operating loss in the year which started on March 1 thanks to a fall in ethanol prices at a time of resilient values of grains, the main raw material.

"The earnings situation of European bioethanol producers has significantly worsened," CropEnergies said, warning of a "difficult time" for the industry.

"Bioethanol prices in Europe are currently lower than the ones in the large bioethanol countries Brazil and the US. Even more, bioethanol is cheaper than petrol in Europe."

Market concerns

CropEnergies blamed the decline in ethanol prices reflects in part on flood of imports of US supplies brought into the European Union via Norway, so sidestepping a penal duty regime.

Norway, while not an EU member, has favourable trade terms with the bloc.

However, it also blamed a cooling by the EU in its enthusiasm for biofuels, amid concern over the impact in underpinning food prices.

"The failure of the EU to consistently pursue its goal to reduce the amount of fossil fuels used in the transport sector also adds to the current market environment," CropEnergies said.

"The continuing discussion in Brussels slows down market growth since many member states hesitate to increase the biofuels share and, for example, introduce E10 [a 10% blend of ethanol in petrol] into the market."

Market reaction

CropEnergies, whose production facilities include the Ensus plant in northern England, forecast a potential operating loss of E30m for the new financial year, with a profit of E20m put as the best-case scenario.

Its shares stood 5.5% down at E4.398 in Frankfurt.

Suedzucker stock stood 19.1% down at E16.555, having touched E16.41 earlier, its weakest since November 2010, and the biggest one-day fall in the group's history.

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