Südzucker AG (SZU) Earnings Call Transcript & Summary

Thank you, and good morning to everybody. We hope you all well, and we welcome all of you to our conference call this morning. The underlying presentation for the call has been published this morning on our web page. Today, we released the statement for the first 6 months of financial year '24, '25. We're going to present the highlights of this period and revisit our full year group earnings guidance for business year '24, '25 that has been changed on 16th of September. Following the call, we're going to answer your questions. A recording of this call will be available on our home page shortly after the call. Now let me hand over to Südzucker's CFO, Dr. Stephan Meeder.

Thank you, Nikolai. So ladies and gentlemen, also a warm welcome from my side. And thank you all for your interest showing in Südzucker. As mentioned by Nikolai, we would like to give you today a brief overview about the business performance in the first 6 months of financial year '24, '25 and give you details about the confirmed earnings guidance for this fiscal year '24, '25. So let me start please with the presentation on Page 5. Here, you can find the highlights of the 6 months results and that's also already indicated by Nikolai and indicated 10th of March, where we had an [ MRR ] 10th of July and stated on 16th of September, Q2 performance was not able to match very strong previous year's numbers. So where do we stand at half year stage. You can see group revenues came in on previous year's level at EUR 5.1 billion but group EBITDA was significantly down by 43% to EUR 420 million and group operating result, as you can see, was down by 55% to EUR 269 million. Cash flow decreased to EUR 343 million and net financial debt at end of August '24 came in [ EUR 60 million ] above prior year's level and EUR 164 million against end of fiscal year '23, '24, which is end of February. So now let's have a look into the segmental performance on Page 6. Here, you can see overall that the group revenues came in on previous year's level. Revenues declined in the Special Products, CropEnergies and Starch segments but increase which is positive in the Fruit and Sugar segments. The group operating result decrease was driven by the Sugar, CropEnergies and Starch segments, whilst the Special Products and Fruit segments showed an increase. So let's now move to segment Sugar on Page 8 and look into more details on the development in the Sugar segment. So first of all, let me please revisit the view on the global sugar market as the main drivers here have an impact on the European prices. So it's always important to start with a worldwide look on sugar balances and then have a more detailed look on the European level. So here on this slide, you can see that in the latest update in September 2024, for the sugar marketing year '23, '24, S&P Global is one of the leading consultancies reports a surplus of 5.2 million tonnes, a stock-to-use ratio stays low at about 38%. For the sugar marketing year '24, '25, S&P Global expects another surplus of about 4 million tonnes. So as a consequence, the stock-to-use ratio is increased and expected to reach 40%. So this surplus situation has an increasingly negative impact on the sugar prices. So based on this worldwide look at more detailed look what happened on the EU level, you will find this on Page #9. And following the trends on the world market, you can see on the slide that there's a strong decrease in the prices, particularly if you have a look on spot prices, and also the red line on the EU reporting, which goes down with a certain delay. So what happened in this period, we have seen that the EU sowing and growing conditions for beet have been favorable so far. And since Q1, there have been increasing indications that this will lead to a significantly larger harvest and corresponding sugar production than originally expected. That was one aspect. The other aspect is that in combination with the sluggish sugar sales so far this year, this has led to a continued high sugar inventories within the EU, although EU sugar exports have occurred in parallel. We have seen this from the beginning of the year that there's an anticipated decline in prices, but this has strongly intensified further, as shown in the graph in recent weeks and months. Additionally, and this is also important starting point where this deterioration in prices happened, and with still burdens on the prices, there are still imports from Ukraine as from January '25 onwards. So as those imports from Ukraine have had a negative impact on prices and there might come as of '25 additional imports, it's important to review the situation on Ukraine. So what happened with the Ukraine situation. Remember that the EU had decided to suspend custom duties and quantitative restrictions on sugar imports from Ukraine since June '22. As a result, about 500,000 tonnes were imported into the EU in the calendar year '23 and just to make a comparison for this 500,000 tonnes that were imported if we take the pre-war situation from the Ukraine into the EU, for example, in year '21, only came 18,000 tonnes. So this is a significant increase that has happened in '23, and this has burdened on the price situation in Europe. Recently, that means on sixth of June '24, the EU has introduced a new safeguard mechanism to limit duty-free sugar imports from Ukraine. So per se, and you see safeguard clause is positive, but nevertheless, this would lead or this limitation is at around 263,000 tonnes for the 2024 calendar year and to around 109,000 tonnes for the first 5 months of 2025. This having said, we have to state that, yes, on the one side, Ukraine import into the EU have shrink, but they are still -- they have come in '24, and we have to be prepared that an additional volume of 100,000 tonnes approximately might come in the first month of 2025 and these effects or these imports also have a negative impact on the price situation. So let's move on with the revenues in the Sugar segment. You can see that revenues in the Sugar segment have increased moderately. A significant growth in sales volumes was offset by progressively declining prices, as I've just explained in the second quarter of '24, '25 and this price decline was due to both increasingly falling prices in EU, as just explained in the second quarter of '24, '25 and significantly higher exports from the EU to the world market. When it comes to operating results, here, the Sugar segment shows a strong decline. And this sharp decline in results is mainly due to the further substantial rises in production costs in the 2023 campaign and increasingly lower prices in the second quarter. Let's continue with the segment Special Products on Page 11. So we come to Special Products. And as a reminder, this segment comprises Freiberger, BENEO, and PortionPack group and revenues in these 3 divisions decreased moderately, mainly due to lower volumes and prices. When it comes to the operating results for the Special Products segment, the operating result increased significantly. This significant overall increase in the segment was mainly driven by higher margins, but this is positive and partly higher sales volumes. When it comes to the cost side, we see here varying trends so raw material costs showed, let's say, varying trends in the divisions. In some cases, we had rising or remaining at the same or previous year's level. Let's have a look what's happened in the third segment. It's CropEnergies on Page 12. Also, let's start with a look on the revenue side. So the revenues in the segment CropEnergies were significantly down. The decrease is due to significantly lower prices for ethanol as well as for food and animal feed products. When it comes to the volume side, here, this is positive. The volumes have increased. This is compared to previous year's lower level where we were affected by scheduled maintenance. In line with the revenue trend, operating result was significantly lower than in previous year. And the main reason for this was like in sugar segment lower prices and here for renewable ethanol, and they were significantly lower than in the previous year. Positively, on operating result has been the lower net raw material and energy costs as well as the higher sales volumes, but in total, they have not been able to compensate for the negative impact of falling prices. And just to give you an indication what happened on the price side, when we look at the market prices for ethanol that means for fuel ethanol in the first 6 months, this average price was at EUR 698 per cubic meter, and this compares to EUR 741 per cubic meter in the period half year '23, '24. And spot in September, there you see also the decrease. The average ethanol price in September in the market was at EUR 630 per cubic meter against EUR 786 in September '23. So based on that, let's move to the Starch segment. And the Starch segment also comprises a part of ethanol sales. So the same effects that I just explained for CropEnergies are also valid for the Starch segment. But let's start on Page 13 with a look on the revenues. Here, you can see that revenues in the Starch segment declined significantly. And this downturn was the result of, as I just explained, significantly lower prices for the products in the Starch segment as well as for byproducts and ethanol. In contrast, this is positive, sales volumes developed positively an increase in the reporting period half year '24. When it comes to operating result, this was also significantly down and the significant fall in prices, as just explained, could not be fully offset by lower raw material and energy costs and significant volume growth. Last but not least, let's move to the Fruit segment. You will find that on Page 14. And also, as a reminder here, the Fruit segment comprises the fruit preparations divisions and the fruit juice concentrate divisions. When it comes to the revenues in the Fruit segment, they have showed a moderate increase. So this is positive, and this is also something that we have already discussed also in the past. It is a well-balanced portfolio that we have here in Südzucker Group. So some -- as we have seen in the past, there are -- if there are segments with negative impact, we also have segments which show a positive development. And here, for example, in this case, it's the Fruit segment, where the revenue showed a moderate increase, in particular, thanks to higher sales volumes of both fruit preparations and fruit juice concentrates. When it comes to operating results, this came in significantly above prior year's level which is positive. The earnings contribution from fruit preparations improved following a slight increase in sales volumes with moderately higher margins. On the fruit juice concentrates side here in contrast, the contribution margins to earnings fell due to moderately lower margins despite higher sales volumes. After this look on the 5 segments that have -- let's turn to the main point in the profit and loss statement. You will find this on the Pages 16 and 17. So in the P&L section, let's start with the results from restructuring and special items. You can see positively that had amounted to EUR 13 million positive and this is primarily due from the special segments product in the relation of the sale of the U.S. dressing and sauce business, which is noncore to the U.S. pizza business. So these assets or this business have been sold at EUR 65 million, as you can see in the cash flow statement and brought in total a EUR 17 million gain on disposal before tax. Looking at the financial results. What can we see here? So the financial result in the first 6 months includes net interest rates in the result of minus EUR 49 million and other financial result of minus EUR 2 million. So there are 2 aspects for the financial results for the interest results. On the one side, we have higher interest expense resulted from higher average interest rates of around 3.4%. And on the other side, the average net financial debt of about EUR 2 billion was down by about EUR 120 million for this period, but resulted then in combination to higher interest expense. Let's continue on Page 17. Here, we start with taxes. You can see that taxes on income came in at EUR 74 million after EUR 115 million in the same period of last year, with an increase of the underlying tax rate to 31%. If you have a look on the prior year taxes, you see a 22%, which is quite low. So on average also going forward, our assumption for average tax rate is in the area of 25%. So this year, slightly higher. Last year, slightly lower. And the prior year tax rate was supported by higher profit in the Sugar segment that were partially tax-free due to noncapitalized losses carried forward from the past. When it comes to earnings per share, you can see that they came in at EUR 0.61 against EUR 1.69 in the previous year's period. So after P&L, let's have a look on the cash flow, working capital and investment development. You will find this on Page 19. Starting with cash flow. Following the earnings situation, as just explained, also cash flow decreased. So cash flow decreased. You will find on the right-hand side of the graph, so first quarter, second quarter and then the first half, you can see that cash flow came in at EUR 343 million. The cash flow against revenues ratio was thus down to 6.7% against 11.7% in '23 '24. Working capital increased by EUR 31 million and investments in fixed assets reached EUR 268 million against EUR 199 million in the last year, but in line with expectations for the full year where we have indicated to be on the investment side, approximately on this year's level for the 12-month period. Let's have a look on the balance sheet. You will find it on Page 21. Starting with net financial debt. So net financial debt at the end of August '24 was EUR 2 billion. And the cash inflow from operating activities amounted to EUR 291 million. And this includes, in particular, the cash flow of EUR 343 million as just evoked and an increase in working capital with a cash outflow of EUR 31 million. When it comes to the financing of investments in fixed assets and financial assets, they were totaling to EUR 275 million and profit distributions that we did in July amounted at EUR 242 million. So all in all, this resulted in an increase in net financial debt of EUR 164 million from February '24, end of February '24, which is the end of the business year to about EUR 2 billion at 31st of August '24, that means after 6 months. Looking at the equity ratio, this is at 47% which is lower compared to the previous year, but this is still a very solid level. So let me now turn to the outlook. You will find the outlook on the Pages 23 to 25. Ladies and gentlemen, before we go into the details of the outlook, please allow me to give you some general remarks as a framework. As indicated at the beginning of this conference call, we said that on September 16, we have announced an [ MRR ] in the notification. And with this [ MRR ] notification 16th of September, we have already adjusted our full year guidance for the first time in this financial year. It was, yes, a substantial correction that adds to the already anticipated earnings reduction shown in the first guidance back in April. What we have to state or what we have seen is that the magnitude and the speed of the earnings situation lead us to respond immediately with extended measures and investigations to further measures to be taken or initiated. And we take it very serious, and we look into everything. These measures that we will have to take or initiate, they include measures for the direct impact on earnings as early as the current year, but also we have to look at mid-term and long-term measures. And these measures are to improve the cash situation for the current business year and also on the cost side. And also that we have already internally an idea about specific figures. So we look into everything for several items. So this is on the cash side and on the cost side, please note that at this point of time, we will not be going into details at the numbers because we are here at an early stage. But as I said, please be assured that we look into everything and take this very seriously. So now let's have a look on the outlook as of today. You can find this on Page 23. This is our confirmed guidance for the financial year, so our group guidance for financial year '24, '25 has been changed on September 16, and we confirm this as of today. And this is the first change since the original publications of the outlook on 15th of April this year. So now we expect the group revenues to come in between EUR 9.5 billion and EUR 9.9 billion. You'll find this in the middle down part of the graph, after EUR 10.3 billion in '23, '24 financial year. And when it comes to group operating results, we expect a range between EUR 175 million and EUR 275 million. Looking into the segments. Now for the Sugar segment, other than foreseen so far, we foresee a loss situation, which is, as I just stated, serious. And for the Sugar segment, we expect an earnings range between minus EUR 150 million and minus EUR 50 million. This compares to EUR 558 million positive last year. In segment Special Products. Operating are expected to come in moderately below previous year's level. For CropEnergies, we foresee unchanged and operating result in the range of EUR 20 million to EUR 60 million. When it comes to the Starch segment, here, we should see a significantly lower result and for the Fruit segment, we should see an operating result on previous year's levels. All in all, totaling to a range for the Südzucker Group operating profit between EUR 175 million and EUR 275 million. On the next 2 pages, you will find the other key figures for the outlook, starting with EBITDA. So following operating profit plus depreciation, we see group EBITDA in the range of EUR 550 million to EUR 650 million. CapEx is expected to be on previous year's level. We will look into this into detail and to monitor what is possible in terms of reduction but given that there are only a few months to go in the business here, it's -- we do not expect a significant decrease in CapEx for this year compared to what we have already indicated, which is the CapEx level in the range of previous. So ladies and gentlemen, thank you very much for your attention. And now Nikolai and myself, we are happy to take your questions.

[Operator Instructions] The first question comes from Oliver Schwarz from Warburg Research.

I was a bit late to the call, hence, you might have elaborated on that already. So sorry for that, if that's the case. I just wanted to ask about the steep decline in the sugar selling price that basically triggered the respective, let's say, downgrade in your guidance and also is the main culprit for the decline in sugar profits. What -- from your point of view, what exactly triggered this situation? Is that sustainable on the current level? Or are we likely to see further declines? And why has that already had such a big impact on the Q2 figures given that you have for most of your volumes annual contracts with your customers in place, which basically fixes the price point for the respective volumes? That would be my first question. Second question, if I may, is around the expected tax rate for the current fiscal year. In the first half year, you were able to employ tax loss carryforwards to drive down the tax rate a bit, I think, in the second half year, what we'll see is basically the opposite that the entities, which were probably profit-making or at least at a 0 result will now become loss-making that should have, let's say, a major impact on the tax rate for 2024, 2025. Could you point me to the ballpark of tax rate we are expected to see in the current year?

Okay. Oliver, let me start with your question on the sugar prices. Indeed, I elaborated that in all details because it's the key element for the guidance deterioration in the H1 results. So you will find us on the pages where we started. We have to start with the world market. And there is a pressure from the world market being that the world market over the last 2 years had been in the surplus situation. So this weighs on the overall supply and demand situation. This has an impact on the European level. On the European level, we had in addition to this world market price -- world production consumption situation, we had intensified deterioration of prices given the increased harvest expectations as has been shown up recently, and this situation of the surplus situation. So this is the main effect, which has intensified over the last 2 weeks, and this led to the negative outlook correction that we have just explained. When it comes to the tax rate, so our general tax rate expectation is 25%. But then this year, we already see a higher tax rate. And so prior tax rate was supported by a very good earnings situation in the Sugar segment where we could use a negative tax carried forward. And -- but for this year, we foresee a tax rate of 32%, but there is an additional risk with the earnings situation. It's too early to fully see what was [ out ] after 12 months. You see already an increased tax rate in H1 at 32%.

Perhaps I may sneak on and add on to that. I fully agree with you that the market expectations regarding the sugar -- world market sugar price -- no, world market sugar volumes have increased due to better harvest. However, over the last, let's say, weeks, for example, sugar price developed -- basically turned the corner and world market price was up again without any, let's say, apart from Brazil, without out any major items there. And still, the European sugar prices, as far as I know, still on the decline. And also, if I look on the graph that you provided in the presentation on Slide 9, there's clearly a disconnect between the European sugar price and also the world sugar price if you look the graphs. And now it seems the European sugar price, at least the spot price already managed to undershoot the international sugar price, which basically means that exports become more attractive for European players, at least if transportation costs are not prohibitive. And hence, my question was more not only to where we -- how we came to this situation, but more to if this situation currently is sustainable at this price level, if we are likely to see a bottoming out of the European sugar prices or if this decline might continue until the gap of the transport costs between the international sugar price and the European sugar price is basically accounted for, and we'll see, let's say, a flat line from there on. That would be my last question.

Oliver, it is complex. And things are not directly reacting. You are right, the world market prices rallied in September. This was due to news in Brazil with fires impacting the Brazilian sugarcane harvest and production assumptions. But this does not necessarily directly link to the European prices. So as I said, all in all, world markets supply and demand has an impact on the European prices but this does not necessarily mean that every short-term effect weighs directly into euro when it comes. But Nikolai can also add on that, we see a downward trend on the prices and there should be soon a floor, because this price situation now as you can see on Page 9 that the spot prices have already reached the world market prices. So there should be a floor to come.

Maybe just one towards this that be aware that when you look at the chart, the chart is not telling you the whole truth about what's going on in the European market because, as you know, we have a heterogeneous environment in Europe. There are surplus markets. There are deficit markets. So you see a planned price there. But we see in our accounts, and we assure that, that's also to be seen in the market that pricing has also to be taken into account below those levels that you can see on the chart. So that tells you that the volume development in Europe currently -- is currently much more important than the world market development, but we can certainly see some bottoming out here that we also mentioned. So hopefully this is going to help us going forward. But the situation is very strongly dependent on the volume situation and the inventory situation in the European market, which Stephan has talked about, that has been not very favorable in the last 24 months, so filling up there. And also, you can see in the second quarter results that the sell-through out of our inventory is better than last year. They have to be better than last year because harvesting campaign was higher last year, but it is below what we would have expected comparing the campaign volume of last year. So this is also true for the whole market. And the last point here is that don't forget that you can see only half of the truth here, not half, but let's say, part of the truth on that chart because on our behalf, but also on the markets behalf, we are selling -- still selling and exporting sugar. So it's something that has also been taken into account here.

Oliver, last word, on the tax rate to be fully clear there. So our midterm guidance for the tax rate is 25%. We have seen last year a lower tax rate due to the positive effect of the negative tax losses carried forward that we could utilize. So in this first 6 months, we are already above this midterm guidance of 25% at 31%. And for sure, there is an additional risk for -- at the end of the financial year, if we have the full picture of the midterm outlook to be done. This is too early to say. But if there were additional risks to be taken into account for the long-term planning of the Sugar segment, there is a risk of additional taxes with the positive tax losses carried forward activated last year. So this is -- as of today, it's too early to say, but there is also a risk that the tax rate might increase for the full year.

The next question comes from [indiscernible].

I would like to follow up on the Sugar segment. And I mean all your comments are basically on a year-on-year comparison. But when looking at the results of the Sugar segment on a quarter-by-quarter basis, so Q2 versus Q1, we find that you've basically EUR 18 million lower sales and EUR 41 million lower EBITDA. So that indicates that the effect from Q1 to Q2 can not only just be a price effect, there must also be a significant cost component in there for the significant reduction in the operating result or in the EBITDA. Could you shed a bit of light into what happened there? Are we looking at depreciation of working capital? Or are we looking at further cost increase whatever?

Yes. Okay. Let's start with that. Nevertheless, before going quarter-to-quarter, it's always good to see the full year picture. And if the full year picture, if you compare last year's results, where we came out at EUR 650 million for the entire Sugar segment. And now with the new guidance for the Sugar segment from [ minus EUR 150 million to minus EUR 50 million ] so there is roughly EUR 650 million to be explained. So last year, [ EUR 567 million ] positive operating profit. So now the new guidance, let's say, midpoint minus EUR 100 million. So EUR 650 million to be explained for the full year. When it comes to the full year, the main effect, let's only talk about the big figures, but if I take the EUR 650 million deterioration in the Sugar segment for the full year this year, '24, '25, we see that there are two main effects, and they're almost equal. One is the cost increase from campaign '23, so this was more than EUR 100 per tonne cost increase for the -- on the production cost side and the lower prices. And those EUR 650 million for the full year, almost equal those two effects. And Q1 to Q2, Niko?

Yes, I think the main part is here very simplistically the pricing. And as I said, we see here on the one side, the contract is right. But we had also seen that we have some spot volumes that we had to sell into the market. That's one point. And as I said before, we have exports that come on top. So that was pressuring the overall average price. And that's the main point why the second quarter, more towards the end of the second quarter is worse than the first quarter.

Okay. And the second one is with regard to your guidance and I respect that you don't want to go into the details, in particular in the Sugar segment. But what I would like to focus on is Special Products and Fruit. I mean what we have seen is that both segments are, let's say, in the first 2 quarters ahead basically of the original guidance. And you've upped your guidance in Fruit, but you have retained your guidance in Special Products. If we would assume that you can maintain the performance in the second half that you had in the first half, Special Products would be flat and Fruit would be up compared to last year. Can we take this as, let's say, a prudent estimate at a still early stage? Or is it more that there is something we should be aware of that will lead to a deterioration of your performance in the second half of the year. So how should we look at this?

For the Special Products segment, as I said, this comprises Freiberger, BENEO and the PortionPack Group. So you can assume PortionPack Group is pretty stable. What we see within the Special Products segment as Freiberger had an exceptional year last year, we see a certain -- there is a margin pressure. So we see a reduction in operating profitability for Freiberger, but an increase for the BENEO division. But all in all, taking all the 3 together, we nevertheless see a moderate decline for Special Products. And you're right, within Fruit, here, we see a stable and an increase of guidance due to better expected performance in H1. So H1 in Fruit segment came better in that we have forecasted in budget. And this is -- we await for the full year to be continued and that's why we see the Fruit segment stable.

Okay. But you are not seeing any specific items why the H2 performance should be worse than the H1 performance in both segments. So there is not -- I mean, obviously, you can't 100% predict where the market is going, the price is going, or volumes are going, what the production does and so on. But there was nothing planned or nothing you know of that should deteriorate in the second half in both divisions. Is that how I should take it? Or is there a contribution now?

I mean we have -- as I said, I mean, for the Fruit segment, we have EUR 52 million operating profit after 6 months. So there is, for sure, some cost increases that we see. But there's nothing which is not seen, which is not reflected in the guidance.

Next question comes from Karine Elias from Barclays.

I had a couple, if possible. If you could just give me some sense of the working capital. If I look at just the outflow, it was a little bit weaker year-on-year in H1. So any guidance for H2, in particular, your thoughts on inventories would be very helpful. And then secondly, obviously, you've got your next maturity, which is November 2025. Any particular plans in terms of how you would address that? I'm assuming that will be mostly from cash on balance sheet, but would you expect to be coming back to the market in the near term?

Yes. Thank you for your questions. On the working capital, we expect an inflow of about EUR 200 million on a like-for-like basis. And on top of that, as also stated, we are planning to start with the real factoring volume that can, let's say, run up to a volume of EUR 400 million. We think that it could end up at the end of the year, about EUR 300 million. So if you inflow could add up a total to EUR 500 million. So also to answer that potential follow-up question on that one, that would lead then to a lower net financial debt on a full year basis as stated in the presentation. So on a like-for-like basis, there would be an expected increase of the net financial debt, but including the factoring, we would expect to be below last year's level on net financial debt. And the -- what was the second question again?

I can take this. Your second question was on the refinancing of the EUR 500 million bond maturity?

Yes, exactly, November '25.

Okay. Yes. So we are already in process of discussing with our core banks about refinancing this loan. And the feedback that we get from our banks is positive. They are fully aware of the deterioration in the earnings situation. But nevertheless, from a debt investors' perspective, feedback is quite positive. They say, yes, but we always also see this very robust divisions portfolio, our product portfolio that we have. So the feedback that we have so far from the banks is very positive. So we are in the process of discussing with the banks how to refinance this bond. We have not yet decided about the volume and the precise measures. But we wait to go into the market in -- after having disclosed the Q3 figures. That means in January, we assume to go into the market.

[Operator Instructions] We have a follow-up question from Oliver Schwarz from Warburg Research.

It's just one. I guess most of the fallout that resulted in changing your guidance was the drop in the sugar price, which is also reflected in the current annual contracts with your customers. But that also has an impact on the raw material prices that you will have, especially in regards to the sugar beet farmers in relation to the sugar beet formula. . So raw material prices are basically bound to come down due to the price decline in sugar. When will this start to have an impact, especially taking into consideration the current, let's say, slow volume demand, should that continue? When would we see the impact of lower raw material prices to materialize in your earnings?

Yes. We -- Oliver, we will see already an effect in the current campaign, obviously, because we expect the prices to go down. And as you know, about the leverage, the price effect will be much more than the raw material effect. So it will start right away in the -- with the start of the campaign. But having said that, I think it's important maybe that has been partially answered also or mentioned before that due to the fact that we were not able and are not able to sell all of our highly priced with a high production cost linked sugar from the campaign last year. We will sell also part of that sugar into the new sugar marketing year, which is adding to the pressure that we have mentioned and to the loss that we expect in the current year. So the loss in the current year is, therefore, overstated because of that runover quote from the sugar that is highly priced from the last campaign year. That's important to know. But it is clear that right with the start of selling the new sugar into the second half, starting later than expected, the raw material price will drop. And obviously, then depending on the campaign next year, we will see where the raw material price will be there depending on the selling price.

The next question comes from Alex Sloane from Barclays.

It actually was kind of slightly related to that last one just there. I mean, I guess you've got kind of sugar prices in Europe now locked in for the second half of the year, but also for most of the first half of next year. I was just wondering if you could quantify in terms of the expected maybe magnitude or ballpark of kind of cost improvement that we might think about in the first half of next year versus the second half of this year that's baked into your guidance, if you're able to -- I appreciate early days, if you are able to kind of help us with the range there.

Thank you, Alex. That's currently not possible. I think what we can tell you to give you some hints here is that to have also an idea how, let's say, accurate we can be or what can be expected in terms of what is left on the table in terms of risk is that we have contracted and priced about 80% of the campaign that is expected. So that tells you what is also left on the table in terms of risk, in terms of the spot market going forward. And the other hint that we can give you is that we assume a price decrease for the sugar marketing year '24, '25 of more than EUR 150 which is, as you know, looking at the leverage significant, and that also leads to that significant loss, but we cannot give an indication on the cost side.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Nikolai Baltruschat for any closing remarks.

Yes. Thank you, everybody, for participating in today's conference call. And as always, we welcome additional questions by phone, by e-mail, as you like, following the call. Thank you, and goodbye.