Südzucker Struggles Amid Weak Sugar Prices and Rising Costs

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MANNHEIM - Südzucker, Europe’s largest sugar producer, reported a sharp financial downturn in its third fiscal quarter, driven by falling sugar prices and rising production costs. Despite increased sales volumes, the company was unable to offset the impact of declining prices in the EU market, where sugar prices have continued to fall significantly.

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Key Highlights

• Revenue and Profit Decline:Südzucker's revenue for the September-November quarter was €2.37 billion, down 12% from the previous year. The operating loss stood at €33 million, a stark contrast to the €268 million profit achieved in the same period a year ago.
• Net Loss:Shareholders faced a net loss of €119 million, compared to a net profit of €171 million in the prior year. This was exacerbated by increased special costs related to restructuring and project cancellations.
• Stock Performance:Despite the weak financial results, Südzucker’s stock gained 0.7%, trading at €10.23. However, the share price has dropped approximately 23% over the past year, leaving the company with a market value of €2.1 billion.

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Challenges and Contributing Factors

1. Weak EU Sugar Prices:EU sugar prices have continued to decline throughout the fiscal year, with a notable drop at the start of the new sugar marketing year.
2. Rising Production Costs:Südzucker is grappling with significantly increased manufacturing costs, which have further strained its profitability.
3. Cropenergies and Write-Downs:The company incurred write-downs on a halted investment project by its UK subsidiary, Ensus, aimed at producing protein animal feed. The reevaluation of the project pipeline reflects challenges in the current market environment.
4. Mixed Business Segment Performance:
   • The sugar division delivered weaker-than-expected results.
   • The biofuel subsidiary Cropenergies also fell short of expectations.
   • However, the fruit division outperformed projections, offering some relief.

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Outlook

Despite the setbacks, Südzucker reaffirmed its annual guidance for the fiscal year 2024/25, ending in February:

• Revenue: Projected to fall between €9.5 billion and €9.9 billion, compared to €10.7 billion last year.
• Operating Profit: Expected to range between €175 million and €275 million, a steep decline from the €947 million achieved in the previous year.

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Conclusion

Südzucker faces mounting pressure from global sugar price trends and rising operational costs, forcing the company to rethink its strategy. While some divisions, like the fruit business, offer hope, the overall performance underscores the challenges of navigating a volatile market. Investors and market participants will be closely monitoring the company’s ability to stabilize its operations and capitalize on opportunities in the evolving sugar industry.