Paris, March 5 - Europe's third-biggest sugar producer, France's Tereos, said on Wednesday it expected to escape much of the financial crisis thanks to rising profits, mainly due to improved European sugar margins.
However in the long term the company's growth would come from cane sugar abroad, Chief Executive Philippe Duval told Reuters in an interview. That is why the company had to secure new financing to help its Brazilian unit Acucar Guarani overcome the crisis.
"For 2009 things are looking rather good despite the financial crisis," Duval said.
Tereos, which also makes ethanol and starch, reported core operating profit up 39 percent for the 2007/2008 fiscal year that ended on Sept. 30 and said it expected it to rise another 16.5 percent this year to 430 million euros ($539 million).
"Most of our activities are in food and so far we have seen little impact of the financial crisis on sugar and glucose consumption. However, in the non-food business, it seems there could be a drop of 5 to 10 percent," Duval said.
He also pointed to the change in the European Union's sugar regime that encouraged producers to stop producing and caused a fall of 6 million tonnes in sugar output.
"The European market is now a balanced market and in these conditions a recovery in margins seems certain," Duval said.
Weaker energy costs and lower grain prices compared to last year would also help, he said.
Tereos said its annual revenue up to Sept. 30 had increased 60 percent to 3.8 billion euros, mainly due to the purchase by its starch unit Syral of five plants from Tate & Lyle's food and ingredients business TALFIIE .
Excluding the TALFIIE effect, Tereos' revenues rose 11 percent, it said.
Still, the company intends to limit its investments to maintenance during the crisis, which should allow it to return to positive cash flows in the current fiscal year, Duval said.
Its only new project planned is a joint venture with Polish state-owned KSC, the leading sugar maker in the country. Negotiations are ongoing however a deal could be sealed this year, he said.
FUTURE IS SUGAR CANE
In recent years Tereos has expanded from being completely based in France to having less than half of its profits coming from its home country, with plants in the Czech Republic, Mozambique and Brazil, its largest foreign market.
It is now the third largest sugar maker in Europe, after Germany's Suedzucker and Nordzucker and the number one ethanol producer. In Brazil, it is the second biggest sugar maker.
And Tereos expects its globalisation trend to last as sugar cane offers more potential than sugar beet produced in Europe.
"If we want to be a major actor in the sugar market today, we cannot do without Brazil," Duval said.
The group plans to secure 63 million euros for Guarani, an amount it said would come from a capital increase of its financial arm Berneuil, and would add to the sum Guarani will collect in a rights issue closing on March 5.
"While the balance in sugar production was split at 50-50 between sugar cane and sugar beet, today it's 80 percent for cane and 20 percent for beet and we know that the gap can only grow because cane has advantages that beet doesn't have."
Duval noted that sugar cane can be used to produce energy, used in factories but also for resale, that it did not need to be replanted every year and that fixed costs were smaller.
"In terms of business we will become less and less French and more and more global, even if our social basis will remain in France," Duval said of Tereos a cooperative gathering of 12,000 French farmers.