Nordic Sugar A/S, which is behind the sugar factories in Nykøbing and Nakskov, is facing a dramatic drop in earnings. After several years of high prices and decent profits, the company now expects that the operating result - measured as EBIT - will plummet to a level that just barely balances above zero.
In the latest financial statement, which has just been published, the sugar producer delivered an EBIT of 514 million DKK. This is the result before interest and tax - and a key indicator of how well the business is running. But next year, EBIT is only expected to land between 15 and 50 million DKK.
Nordic Sugar's Operating Profit (EBIT)
Source: Nordic Sugar A/S, annual reports 2021-2025
The explanation is mainly that the sugar price in the EU has plummeted. Nordic Sugar has already felt the pressure at the end of the last financial year, and management predicts that it will continue into 2025/26. It is only in the second half of the year that prices are expected to possibly stabilise. Until then, the company must live with much lower margins on the sugar sold.
Core business under pressure
This is a drop in earnings that practically means the company almost no longer expects to make money on its core business. And that is precisely what EBIT measures: How much a company earns from its operations, without taking into account either financing or tax. When that figure falls from over half a billion to a range between 15 and 50 million, it means that the engine room is just barely kept running.
The new financial statement looks reasonable otherwise. The year's result lands at 565 million DKK after tax. It is lower than the record year before, but still solid. Equity is rising, the balance sheet is growing, and the company has made decent investments. However, the underlying figures and expectations for next year point in a different direction.
Revenue has fallen from 3.5 billion DKK to 3.165 billion DKK - a drop of nearly 400 million DKK. This is due to both lower sales prices and lower volume. The European market, in particular, has dragged down. Nordic Sugar, as a group, has allocated a larger share of its production to less attractive markets and contracts. In the management report, the company writes that the high prices in the first half of the year were followed by a sharp decline in the second half. And that the outlook for better prices going forward is marked by great uncertainty.
From oil to natural gas
Nevertheless, the company has maintained its investments. A total of 231 million DKK has been spent on production facilities and equipment over the year. The factories in Nakskov and Nykøbing have switched from oil to natural gas during the year, and the next step will be biogas. The goal is to make sugar production significantly more climate-friendly, and as the energy source is converted, CO₂ emissions are expected to decrease noticeably.
At the same time, Nordic Sugar has entered into an agreement with the biogas producer Nature Energy to supply beet pulp from sugar production. The beet pulp will be used as a raw material in biogas production, and the agreement is expected to save up to 37,000 tonnes of CO₂ per year.
Plans to change production
In addition to energy consumption, the company is working in the longer term to change the actual production method. A PhD project at Lund University of Technology, in which Nordic Sugar is participating, is investigating whether it is possible to produce sugar without the use of lime. Instead, membrane technology is being tested, which could potentially reduce both energy and raw material consumption.
At the group level, Nordic Sugar consists of companies in Denmark, Sweden, Finland, Lithuania, and Latvia. The Swedish and Finnish subsidiaries have contributed positively, while the subsidiary in Lithuania is dragging down the accounts - partly due to exchange rate fluctuations. No specific figures are provided for the individual countries, but the group as a whole has had a lower level of activity than the previous year.
The company's total assets have increased to just under 6 billion DKK. A significant part of the increase is due to increased intercompany balances - i.e., loans or intercompany accounts between Nordic Sugar A/S and other companies in the Nordzucker group.
No dividend will be paid for the year. Instead, the profit remains in the company and strengthens the equity, which now amounts to 3.582 billion DKK.
Arbitration case looms
At the same time, Nordic Sugar is in the midst of a conflict with its suppliers. The Danish Sugar Beet Growers Association has brought a case to arbitration, demanding 127 million DKK. The disagreement concerns the new testing equipment that the company has acquired at the factories in Nakskov and Nykøbing. According to the growers, the equipment has provided lower measurements of sugar content and purity - and thus lower payment for the beets.
The case has been ongoing since the autumn and was brought forward after negotiations broke down. Nordic Sugar has not publicly commented on the conflict.
