Interim report 3rd Quarter Financial Year 2005/06, 1st March to 30 November 2005

Mannheim, 13.01.2006

Dear Shareholders,

This interim report informs you about the development of business in the first nine months of the current 2005/06 financial year (March to November 2005).

Reform of the European Sugar Market Regulation

The Council of the Ministers of Agriculture of the European Union agreed on a reorganisation of the Common Sugar Market Regulation on 24 November 2005, with the core elements of the Commission's reform proposal of 22 June 2005 being adopted. This includes a drastic reduction of the sugar reference price and the sugar beet price from 2006/07, the creation of a Restructuring Fund and the possibility for previous C-sugar producers to purchase a total quota of 1.1 million tonnes. These measures are aimed at strengthening the competitiveness of the European sugar industry and at the same time creating a long-term perspective for efficient producers. The reform had become inevitable after the WTO panel was lost in spring 2005.

The Restructuring Fund will offer to buy quotas from sugar producers on a voluntary basis over the period 2006/07 to 2009/10. Regions which largely abandon sugar production will receive compensation in the form of additional regional aid for the sugar factories that are to be closed and for giving up sugar beet production. It will still be possible for sugar to be imported into the EU from less developed countries but the growth in volume will be capped by protective clauses. The previous C-sugar producers will be able to purchase an additional quota of up to 1.1 million tonnes. The reduction of the sugar reference price by a total of 36 % and the sugar beet price by 39 % is less than had been put forward in the Commission's proposal of 22 June 2005 and will now take place in four steps over the period 2006/07 to 2009/10. An average of 64.2 % of the income lost by beet growers as a result of the reduction of beet prices is to be compensated.

The reform that has been passed offers efficient producers reliable framework conditions and long-term planning certainty through to September 2015. Compared with the European Commission's proposal of 22 June 2005, Südzucker welcomes the now 3 percentage point lower price reduction and the improved framework of the Restructuring Fund.

Südzucker assumes that the planned price reductions and the volume restrictions will lead to far-reaching structural changes in the European sugar industry. Especially producers in climatically less suitable beet-growing regions of the EU will accept the Restructuring Fund's offer, thus significantly reducing the present production capacity in the EU. Thanks to the concentration of the Südzucker factories in the most efficient regions with the highest sugar yields in Europe the company is in an excellent competitive position. To strengthen its competitiveness, Südzucker will also undertake cost-cutting and structural measures in order to defend the profitability of the Sugar segment despite the considerable burdens from the price reductions.

At the WTO summit in December 2005 in Hong Kong it was resolved to stop all officially supported exports by 2013; the reform of the Sugar Market Regulation already largely takes this into account. Further resolutions, especially on market access, are to follow later in the course of 2006.

Admixture of bioethanol to be made mandatory

At the beginning of December 2005, within the framework of the coalition agreement, the German government spoke out in favour of making the admixture of biofuels to conventional, mineral oil-based fuels mandatory. The aim of such a requirement is to fulfil the goals pursued with the ratification of the Kyoto Protocol. We expressly welcome this political resolve to continue promoting the use of biogenic fuels in the mineral oil industry. We see the coalition agreement as confirmation of our decision to invest in this environment-friendly business and continue to view the market»s as sustainably positive.

Sugar production in 2005

Good growing conditions resulted in a beet harvest of 31 million tonnes within the Südzucker Group, which was on a par with the previous year's, and the production of 4.8 (4.8) million tonnes of sugar from sugar beet. The Group's beet-growing acreage was slightly lower but the average yield rose to 11.2 (10.9) tonnes/sugar per hectare.

The again good sugar beet quality and low soiling had a beneficial influence on the course of the campaign. This was again proof that Südzucker's strategy of concentrating production on the most efficient, high-yield beet-growing regions of Europe is right. Including the refining of cane sugar, the Südzucker Group produced a total of 5.2 (5.1) million tonnes of sugar.

During the 2005 campaign the sugar was produced, as the year before, at 45 factories. Production went smoothly. Taking an average of 90 (91) days, the campaign was completed in more or less the same time as the year before.

Capital-raising measures

The 1-for-12 rights issue approved by the Annual General Meeting on 28 July 2005 was carried through successfully in September 2005. The 14,565,662 new no-par-value shares issued at a price of EUR 14.00 per share provided Südzucker with proceeds of approximately EUR 201 million. Owing to the exceptionally strong demand we were able to increase the hybrid capital issued in June 2005 by an additional EUR 200 million to EUR 700 million in August 2005. The placing of a total of roughly EUR 900 million of equity, which found a positive echo in the capital markets, underlines the confidence placed in Südzucker's strategy and long-term prospects.

The equity base has been substantially strengthened by these capital measures and, now amounting to approximately EUR 3.8 billion, provides the foundation for carrying through the Group's long-term, dynamic growth strategy. This consists, on the one hand, in the further expansion of the Special Products segment, with the main focus on investment in the bioethanol, fruit and functional food businesses. On the other, we will be further strengthening the competitive position of the Sugar segment within the reorganised EU sugar market and, additionally, will be looking for advantageous investment opportunities outside the European Union.

Capital expenditure

In the current financial year the focus of investment activity is again on the Special Products segment. The biggest single project is the construction of the Orafti plant in Chile. Work is progressing according to plan; it is scheduled to come on stream in spring 2006. With a total budget of EUR 165 million, the new factory will almost double Orafti capacities. They will be available to capitalise especially on the expected market growth on the American continent.

In the fruit business, Steirerobst AG brought a new plant in Serpuchov near Moscow (Russia) on stream in September 2005. At this location, which enjoys favourable production conditions and direct proximity to the main customers in the dairy industry, it is planned in future to produce around 15,000 tonnes of fruit preparations per year in order to participate in the dynamic growth of the Russian market.

In December 2005 the ownership interest in the Atys Group was increased to 100% after acquiring the remaining 37.5% of the shares. With revenues of approximately EUR 450 million, Atys is the world market leader for fruit preparations for the dairy industry and is therefore participating in the growing global market for fruit yoghurts. The market position of the Atys Group is being further strengthened by the re-acquisition of Deutsch-Schweizerische Früchteverarbeitung GmbH (DSF), Constance, which was approved, subject to conditions, by the German Cartel Office in December 2005. The acquisition of DSF, which achieved revenues of approximately EUR 60 million in the past financial year, considerably enhances the competitive position in the German market for fruit preparations which - in terms of volume - is the biggest in Europe. At present, efforts are in progress to group the fruit companies together under one management holding company each for the fruit preparation business and for the fruit juice concentrate business. This will further improve market and customer proximity and at the same time will enable synergies to be effectively tapped.

The bioethanol business is also being expanded further. Besides the construction by AGRANA of a bioethanol plant at the Pischelsdorf/Austria location, Südzucker is currently considering extending its activities in this environment-friendly business to Belgium, too.


In the first three quarters of the 2005/06 financial year Group revenues rose by EUR 401 million, or 11,1%, to EUR 4,009 (3,608) million, with both the Sugar segment and the Special Products segment growing revenues versus the year-earlier period.

Revenues in the Sugar segment were up by 4.1%, or EUR 108 million, to EUR 2,720 (2,612) million. This was due in the main to higher exports of quota and C-sugar on the back of the previous year's good harvest which led to strong growth in revenues especially in the first half of the year.

Revenues in the Special Products segment were up by 29.4%, or EUR 293 million, to EUR 1,289 (996) million, mainly due to the enlargement of the fruit business. In contrast to the year-earlier period, this includes first-time revenues of the Atys Group for six months and the Wink Group for nine months. Moreover, in the year-earlier period Steirerobst had been included pro rata for only six months.

Income from operations

In the first three quarters of the 2005/06 financial year the Group achieved an income from operations of EUR 349 (403)million and an operating margin of 8.7 % and - as had been announced - was therefore not able to match the year-earlier result.

The income from operations in the Sugar segment fell well short of the year-earlier level at EUR 256 (286) million. While in the first half of the year sharply increased exports from the 2004 bumper harvest still managed to more than compensate for the burdens from the lack of declassification by the European Commission in 2004, declining exports in the third quarter led to a drop in earnings. The result was additionally burdened by considerably higher energy prices compared with a year earlier.

The income from operations in the Special Products segment declined to EUR 93 (117) million. This was due in the main to start-up losses at the bioethanol plant in Zeitz. However, significant progress has been made over the past months in eliminating technical capacity restrictions, but this will only take effect from the fourth quarter. The functional food business was unable to repeat its outstanding year-earlier results which had been buoyed especially by strong demand in the USA on the back of the "low carb" wave which has since subsided. The fruit and starch activities continued to develop well, sustaining the good results achieved in the second quarter.


For the full year 2005/06 we expect Group revenues to be up by almost 10% to EUR 5.3 (4.8) billion.

In autumn 2005 the Commission at last undertook the declassification of 1.8 million tonnes of sugar needed to restore the market balance which had been omitted the year before. This reduces the Südzucker Group's quota for 2006/07 by approximately 449,000 tonnes. This will lead to a corresponding decline in revenues, but this will be slightly more than offset by an increase of almost EUR 0.2 billion in revenues in the Central and Eastern European region following the new member states' entry into the EU and good C-sugar business with significantly firmer world market prices. In the Special Products segment we expect revenues to be up by EUR 0.5 billion, or 35%, to just under EUR 1.8 billion, which will be attributable in the main to the expansion of the fruit business and higher revenues from the start-up of bioethanol production.

We will not match last year's income from operations in the 2005/06 financial year. The main reason for the weaker performance is the continued price pressure weighing on the market caused by the non-exportable surpluses resulting from the lack of declassification the year before. This has led not only to considerable pricing pressure but also to an exceptionally high supplementary levy incurred, also as a result of the lack of declassification, on top of the production levy. Further burdens stem from the higher energy costs, with the result that income from operations in the Sugar segment will fall well short of last year's result despite the, thanks to the bumper harvest, strong and, thanks to firmer world market prices, improved C-sugar business. For the Special Products segment we expect income from operations to match last year's level. The bioethanol plant will still burden the segment's earnings despite much lower start-up losses in the fourth quarter, while the functional food business will not be able to repeat its, on the back of the "low-carb" wave, exceptionally good result last year. However, the Special Products segment's result will be strengthened by the fruit business.

Yours faithfully,
The Executive Board

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