Danisco gears up for EU sugar reform

By Anthony Fletcher

- Last updated on GMT

Related tags Sugar Eu sugar European union

Danisco says that the finalisation of the new EU sugar regime and
the recently announced transitional measures will not affect the
firm's planned efficiency drive.

In anticipation of the EU's new sugar reform coming into effect, the company recently unveiled a series of closures to safeguard its sugar activities in the face of widespread regulatory reform and increasing competition.

The company says that these efficiency measures will affect up to 350 employees and reduce Danisco's total production of quota sugar by around 100,000 tonnes.

The move is designed to ensure that Danisco's sugar operations are streamlined in time for the new sugar regime, which comes into force in July 2006.

The company says that these plans remain in place, despite the European Commission's announcement of a temporary reduction of around 2.5 million tonnes in the EU's quota sugar production in the coming sugar campaign.

This is designed to ensure that the newly reformed sugar regime gets underway without heavy surpluses undermining market balance.

"The Commission has made a positive move to normalise the sugar market situation in the EU faster, even if it means a lower quota production for sale in the next financial year,"​ said executive vice president Mogens Granborg.

"Although the reduction is bigger than expected, the financial implications will not cause a change in the expectations for the underlying operations."

The closures include the sugar factory in Assens, Denmark, the sugar factory in Kpingebro, Sweden, the sugar factory in Salo, Finland and the sale of parts of the sugar quotas in Sweden and Finland.

Danisco is currently negotiating with the employees at these workplaces.

"The negotiations with the beet growers about the future inter-professional agreements are also progressing well, though the talks in Finland are very complicated,"​ said the firm in statement.

This restructuring levy, said Danisco, must be considered a sort of special one-off levy intended to promote faster quota sales. The company says that the levy will have a negative impact on the 2006/07 results of around DKK 100 million before any positive dynamic effects.

Expectations for the 2006/07 financial year will be announced in connection with the announcement of the annual results for 2005/06 on 20 June 2006.

The company says it is still on target to achieve a future stabilised earnings level of DKK 525-675 million calculated at today's energy prices.

Danisco estimates that once fully implemented, the EU sugar reform will reduce the estimated earnings level to DKK 600-750 million a year. This estimate assumed that the increase in energy prices in the autumn of 2005 would be of a temporary nature.

EU sugar reforms, which come into effect on 1 July 2006, feature a number of concessions designed to give European sugar producers a viable future. First there was the climb-down from the original proposed 39 per cent price cut to a figure of 36 per cent, and most significantly for sugar producers, there was agreement the sector would be compensated for, on average, 64.2 per cent of this price cut.

This has given the sugar industry reasons to be hopeful. A Standard & Poor's Ratings Services study, entitled "Sweet'N Slow: Gradual Liberalisation Of EU Sugar Regime Preserves Credit Quality"​, said that given the gradual nature of the reform should provide a fairly protected environment for European manufacturers over the next four years.

We continue to believe that full deregulation in the EU market for sugar production and processing is remote," said Standard & Poor's credit analyst Olaf Toelke.

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