BRAUNSCHWEIG, Germany (Reuters) - A plunge in sugar prices will hit earnings at Nordzucker this fiscal year, the German sugar refiner said on Thursday, adding its strong finances would help it to cope - and even expand - in a European industry crisis that might cripple others.
The European Union liberalized its sugar market in September, ending its system of guaranteed minimum prices and protected production quotas, giving producers freedom to expand and export more and linking EU prices to world markets.
But a worst-case scenario emerged, with European producers exposed to global prices which have fallen about 40 percent since early 2017 in an oversupplied world market.
Some EU sugar producers with weak finances are expected to go out of business and mergers are also possible, Nordzucker CEO Lars Gorissen said. This will create takeover opportunities.
Takeovers “are absolutely a theme which belong to our program,” Gorissen told a press conference. “We have such a strong financial base that we are one of the companies which can afford to do this in this difficult phase both inside and outside Europe, and it is our plan to do this.”
Nordzucker expects a significant fall in earnings in its new financial year that started on March 1 and is “focusing on avoiding a loss”, Gorissen said.
“The transition into the (EU’s) liberalized sugar market is stamped with hard competition and a massive price fall,” Gorissen said in a statement on the non-listed company’s financial results.
“A new balance will have to be found in the market. The way forward to this will involve a market shake-out in the EU.”
White sugar futures fell to their lowest in over nine years in April as a global supply glut weighed on prices.
Nordzucker reported a 3 percent rise in sales to 1.65 billion euros ($1.93 billion) in its 2017/18 financial year to the end of February 2018. Net profit rose to 118 million euros from 99 million euros in the previous year.
But the fall in sugar prices in the final quarter had a negative impact on results, it said.
The sharp fall in sugar prices means exports are currently not profitable but expanding them remains a goal, Gorissen, who took over as CEO in March this year, told a press conference presenting the company’s results.
Nordzucker has a strong capital base and plans international expansion, he added
“The EU will remain the core market for Nordzucker,” Gorissen said. “The capital base gives us security and opens possibilities to use the tense market phase to secure and expand market share.”
He added: “We will develop step by step into a globally operating company. We will focus on exports and on production locations in other parts of the world.”
British sweeteners and food ingredients company Tate & Lyle said on Thursday it was stepping up efforts to accelerate profit growth to counter a tough food and drink market.
Reporting by Michael Hogan; Editing by Jason Neely and Mark Potter