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Suedzucker shares tumble as it cautions over EU beet crop, and soaring cherry prices

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Suedzucker shares tumbled after it forecast an even weaker beet processing campaign this year, the prospect of further “unsatisfactory” sugar prices, with weak European fruit harvests adding to challenges

 

Shares in the German-based group, Europe’s top sugar refiner, plunged by 9% in early trading in Frankfurt to a five-month low before recovering a little ground to stand at E13.09 in late morning deals, a drop of 7.7% on the day.

 

The decline followed results showing that Suedzucker’s earnings for the June-to-August period, the second quarter of its financial year, dropped by 59% to E9.8m, on revenues down 30% at E266.7m.

 

Operating profits, at E33.9m, were 47% below the year-ago figure.

 

And the group said that its 2019-20 sugar beet processing campaign would fall even shorter than last season’s, after drought damage to the crop.

 

Shorter campaign

“Once again, this year, heat and drought during the summer months led to overall below-average yield expectations in most of Suedzucker Group’s cultivation areas,” the company said.

 

“The average campaign length” for its processing season - which kicked off in August in Moldova, but with most plants starting over the past month – “is expected to be 106 days”.

 

That is below the 115 days last season, when Europe also suffered a drought-reduced beet harvest, and well beneath the 133 days recorded for 2017-18.

 

The group said it planned to produce 4.45m tonnes of sugar in 2019-20, from 28.1m tonnes of beet, down from figures last season of 4.62m tonnes and 29.3m tonnes respectively.

 

In 2017-18, Suedzucker produced 5.7m tonnes of sugar from 36.0m tonnes of beets.

 

‘Unsatisfactory prices’

The group cautioned too that sugar prices “on average will continue to be unsatisfactory for the fiscal year”, which ends in February 2020.

 

And, “with volumes declining… and substantially rising production costs for the 2019 campaign, particularly as a result of the raw material premium paid for the delivery of beet”, Suedzucker stood by expectations of a full-year operating loss of 200m-300m in sugar.

 

The division reported a widened operating loss of E55.3m in sugar for the June-to-August period, up from a E6.2m loss a year before, on revenues down 22.0% at E541.1m, blaming weak prices, and the setback to volumes from last year’s drought-affected beet harvest.

 

‘Prices sharply higher’

In fruit, the group ditched expectations for full-year operating profits to “rise moderately”, saying they were now forecast “to drop significantly”, flagging “lower availability of apples”, and “lower capacity utilisation” after weak harvests of some other crops too.

 

In apples, Hungary’s output was “expected to be significantly weaker than last year due to a spring frost”, with output “expected to be much lower” too in key producer Poland, where other fruit harvests too had been diminished by weather upsets.

 

The raspberry harvest in Serbia and Ukraine, as well as Poland, “yielded lower volumes than last year due to hot weather, which drove prices as much as 60% higher than the historic lows recorded last year”, Suedzucker said.

 

“A similar scenario, also due to weather, was seen for sour cherries in Poland and Serbia.

 

“Because of the significantly lower raw material availability caused by frost damage, prices were sharply higher than last year, in some cases by up to 80%, especially in Poland.”

 

The fruit division in the June-to-August period reported a drop of 33% to E14.3m in operating profits for the latest quarter, on revenues down 5.2% at E284.3m.

 

Ethanol improvement

However, despite the weakened expectations for fruit profits, Suedzucker stood by expectations for full-year group results of E6.7bn-7.0bn in revenues, and E0-100m in operating profits.

 

The group raised to E50m-75m, from E30m-70m, its forecast for full-year results from the CropEnergies ethanol business, citing expectations that values of the biofuel will prove higher than last year, when it saw “sometimes very low prices”.

 

In the latest quarter, CropEnergies operating profits near-tripled to E28.5m, on revenues up 27% at E219.7m, with margins supported by a drop in wheat prices, weighed by “excellent harvest prospects for Europe”.

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