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EU ethanol woes may push CropEnergies into a loss

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CropEnergies, the owner of the UK's Ensus bioethanol site, warned of a potential fall in the red for the first time in nine years as it cautioned over the threat to the Europe's biofuels producers from US imports and political deadlock.

The German-based group unveiled earnings of E12.0m for the year to the end of February, down 79% year on year, and below market expectations of an E18.0m result, according to a Reuters poll.

Although revenues rose 13.4% to E780.8m, reflecting the acquisition of Ensus, one of Europe's biggest grain ethanol plants, the margins were reduced by higher grain prices.

Indeed, while grain prices were "mainly above E200 a tonne despite a record harvest", bioethanol values fell over the financial year by a "surprisingly massive" 30% to E440 per cubic metre, the group's chief operating office, Marten Keil, said.

Into the red?

And CropEnergies cautioned that operating profits, which in the year to February dropped 60% to E34.6M, would fall further in the current financial year, to at best E20m and potentially dropping E30m into the red.

The group has not reported an operating, or overall, loss since the year to February 2006.

Analysts had expected the group to achieve an operating profit of E39.9m for the current year.

CropEnergies forecast its revenues rising to E850m-900m, potentially beating a consensus forecast of E863.9m.

'Ill-founded u-turn'

While the group -which proposed cutting its dividend to E0.10 per share from E0.26 per share last year - stopped short of detailing the reasoning behind their forecast for weaker profits, the decline comes against weak dynamics for European groups.

Besides stubbornly elevated grain prices, European groups complain over "illegal" imports from the US, with traders alleged to be circumventing anti-dumping duties on US ethanol introduced last year by shipping to Norway, from where the biofuel is transported to the European Union under a more favourable trade regime.

And these imports are coming at a time when Europe's own producers are lifting production, by a forecast 6.3% to 7.1m cubic metres this year, while demand is being curtailed by a retreat by EU policymakers from measures to boost consumption of biofuels, and reduce dependence on fossil fuels.

CropEnergies described as an "ill-founded u-turn" proposals to retreat from some biofuels targets, a withdrawal prompted by ideas that crop-based energy is taking an undue amount of land away from food production.

And it cautioned that, with policy "uncertainty" slowing the uptake of measures already in place, European countries were "squandering potential for a quick and cost-efficient reduction of greenhouse gas emissions in the transport sector and a reduction of [use of] fossil fuels".

Ensus update

On Ensus, which has annual capacity for producing 400,000 cubic metres of ethanol, CropEnergies said that its "Initial focus" since acquiring the plant was "on extensive maintenance and repair work", besides investing in new laboratory equipment and updating the IT infrastructure.

The group aimed "to successively increase the plant's availability, flexibility and efficiency through a comprehensive investment programme".

Ensus and rival Vivergo plant have capacity for swallowing more than 2m tonnes of wheat a year, some 15% of typical UK production, although they have been operating well below maximum levels.

CropEnergies shares stood 1.2% lower at E4.832 in afternoon deals in Frankfurt.

By Agrimoney.com

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