Moody's Investors Service has changed its outlook on Südzucker's Baa3 rating to stable from negative, citing improvements in the group's underlying profitability and level of cash generation.
Moody's said that it also noted 'positive supply/demand dynamics' in the European sugar market, which it said should support further improvement in credit metrics over the next 12 to 18 months.
Improvement In Profitability
"The outlook change to stable from negative reflects the improvement in the company's underlying profitability, cash generation and credit metrics since 2019, as well our expectation that these improvements will continue over the next 12 to 18 months supported by favourable dynamics in the European sugar markets," said Paolo Leschiutta, a Moody's senior vice president and lead analyst for Südzucker.
"The upgrade of the rating on the hybrid notes reflects our expectations that a breach of the cash test covenant (consolidated Cash Flow less than 5 % of consolidated revenues) is today less likely given Südzucker's improved cash flow generation."
Südzucker Nine-Month Performance
Moody's ratings update follows on from a trading update by Südzucker last week, in which it noted a 'significant improvement' in performance in the first nine months of its financial year.
Group EBITDA for the nine-month period rose to €519 million (compared to €456 million a year earlier), while revenue rose €550 million to €5.64 billion.
In its ratings rationale, Moody's said that the company's profit is likely to remain 'volatile', given that it depends on the levels of contracted sugar and ethanol prices.
However, it added that the recent rationalisation of the European sugar market, coupled with Südzucker's efforts to reduce and optimise its production capacity, has 'made its cost structure more flexible, [and] will allow it to mitigate the potential volatility in prices resulting in more stable credit metrics'.
Higher sugar prices in recent months have been driven by lower production expectations, largely in Brazil, as well as higher oil prices leading to higher logistics costs and higher demand for ethanol.