The sugar giant underlines the prospects of a further world production deficit, but cuts its forecast for its profits from the sweetener

Suedzucker restated expectations of a “positive” sugar market, even as it cut its forecast for its own profits from the sweetener, in results which revealed a fifth successive annual loss at a commodities house ED&F Man.

The German-based group quoting an IHS Markit forecast of a third annual world sugar output shortfall in 2021-22, of 3.4m tonnes – said that “with a further deficit in the world sugar balance… the world market environment is expected to remain positive”.

The shortfall, “driven by weaker production expectations for Brazil”, will cut to 36.8% the global sugar stocks-to-use ratio, from down from 42.0% in 2018-19, and “the lowest level in more than 10 years”.

In the European Union, where Suedzucker is the top sugar producer, “continuing difficult growing conditions” for beet mean that the region “will remain a net importer” this season, meaning that the group “will enjoy a positive market environment”.

Sugar business outlook sours

However, Suedzucker, blaming soaring costs, nonetheless lowered its expectations for the return of its sugar division to the black, following three years over which the unit ran up a combined operating loss of nearly E600m.

Cutting from E0-30m its forecast for its sugar division’s operating profit in the year to the end of next month, from a previous estimate of E0-100m, the group highlighted “significantly higher energy and packaging material costs, and further increases in raw material costs.

“Furthermore, additional charges could arise” from the fresh wave of Covid-19 led by the Omicron variant, which has caused fresh restrictions in EU countries including Germany.

“Given the fourth corona wave… we are faced with possible additional charges,” said the group, which has blamed the pandemic for “distorting” the likes of oil and gas prices, freight costs and exchange rates.

ED&F Man losses

The group also signalled a further loss at ED&F Man, in which it is a major shareholder, saying that a E52m charge against profits for the March-to-November period, of which E39m related to the September-to-November quarter, “relates mainly to” the holding in the commodities house.

“The losses… are based on the still preliminary financial statements for ED&F Man’s fiscal year ended September 30,” which showed profitability undermined by “the impairment of industrial holdings combined with high financing costs”, Suedzucker said.

The group lowered to E34 the book value of its ED&F Man stake, as of the end of November, down from E89m a year before, and E307m as of February 2019.

However, the E52m charge was well below the E142m taken a year before, implying a decelerating pace of losses at ED&F Man, which for the year to September 2020 reported an after-tax loss of $218.7m.

That represented a fourth successive year of losses, totalling $631m.

Group outlook

Suedzucker revised its forecast for group operating profit in the year to the end of next month to E320m-380m, from E300m-400m, narrowing the estimate around a mid-point of E350m.

While expectations for the sugar division had receded, alongside hopes for profits growth in the fruit division, strong ethanol markets had buoyed prospects for the CropEnergies and starch units.

For the September-to-November quarter, the group reported a 91% surge to E127m in group operating profit, on revenues up 17.4% at E2.04bn, led by CropEnergies.

Suedzucker shares stood 1.6% lower at E13.15 in afternoon deals in Frankfurt.

cut to E0-30m its forecast for its sugar division’s operating profit in the year to the end of next month, from a previous estimate