Suedzucker said "cost structure" of sugar arm "under review"

Suedzucker said "cost structure" of sugar arm "under review"

German sugar refiner Suedzucker has cautioned operating profit in its current financial year will fall below expectations, a warning that hit shares in rival Associated British Foods.

Suedzucker said it expects a "significant decrease" in operating profit to around EUR200m (US$275.8m). For Suedzucker's previous financial year, which ended in February and on which the company reported yesterday (8 April), the group's operating profit was EUR658m. That result itself was down by a third.

The planned end of EU sugar quotas in 2017 is putting pressure on prices of the ingredient.

Shares in Suedzucker slumped more than 20% yesterday and the announcement hit ABF's stock, which fell almost 4%.

"The expectation of an increasingly deteriorating economic environment in the European sugar and bioethanol markets – disclosed via several ad-hoc announcements in November and December 2013 as well as in February 2014 – has been confirmed and reinforced," Suedzucker said.

The company said inventory levels in the European sugar market were "high" and it expects the EU not to "take further market measures".

Looking ahead to the end of EU sugar quotas, Suedzucker said the "cost structure" of its sugar business is "under review".

Graham Jones, an analyst at Panmure Gordon covering ABF, said in February he had cut his EBITA forecast for the UK group's sugar business from GBP280m (US$468.5m) to GBP220m.

After Suedzucker's announcement, he said: "We believe it is prudent to further reduce our forecast to GBP200m. This cuts our EPS estimate for 2015 from 109.0p to 107.1p, implying 5% growth on our 2014 forecast, which we leave unchanged."