November 28, 2019 / 2:04 PM / 16 days ago

Sugar group Tereos expects visible improvement in H2 results

LONDON, Nov 28 (Reuters) - French sugar group Tereos SA expects to report improved results in the second half of 2019/20, driven by higher prices for both sugar and ethanol, Chief Executive Alexis Duval said.

“We do not give guidance for the second half but we do anticipate to have a visible improvement in our results,” he said in an emailed response to questions about the outlook for the company.

Tereos, along with rival European sugar producers such as Suedzucker and Nordzucker, has seen its results hit by a fall in European Union prices following the liberalisation of the sugar sector in 2017.

In the first half of the 2019/20 fiscal year the company recorded a net loss of 21 million euros.

Duval said the company’s business-to-business volumes, which account for 60% of total sugar sales in Europe, have been aligned with a rise in spot EU prices above 400 euros a tonne, up from 300 euros last year.

“This will be visible progressively from Q3 as the new prices materialize and the old multi-year and calendar year contracts unwind,” he said.

“We definitely anticipate improved results in the second half supported by these prices. This is linked to improved market fundamentals in Europe – ie regardless of any potential movement in world prices – as well as to an increase in volumes and to gains from our performance plan.”

Duval said the company’s Brazilian operations, which are most closely linked to global price trends, would benefit from higher volumes.

Prices may also start to rise as a widely forecast global deficit in the 2019/20 season starts to materialize, he added.

Tereos is also a major producer of ethanol which has a positive price dynamic in Europe as several countries introduce fuels with a higher proportion of biofuels, he said.

“Arbitrage opportunities are now open for players having that industrial flexibility, such as Tereos, allowing them to prioritize the more profitable ethanol market than sugar exports,” he said.

Ratings agency S&P Global, however, on Thursday downgraded Tereos’ debt rating, citing a slower than expected earnings recovery and persistently low global sugar prices but changed the outlook to stable from negative.

“There were signs of recovery in December 2018, as well as anticipation of a price increase toward 13.5 cents/lb -almost equal to the cost of production in Brazil - but this scenario did not materialize,” S&P Global said.

Benchmark global raw sugar prices on ICE closed at 12.79 cents per lb on Wednesday. The market was closed on Thursday for the U.S. Thanksgiving holiday. (Reporting by Nigel Hunt; editing by David Evans)

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