March 11, 2020 / 5:34 PM / 23 days ago

Exclusive: French sugar group Tereos asks suppliers for price reductions

PARIS (Reuters) - French group Tereos, the world’s third-largest sugar maker, has asked regular suppliers for price reductions to help it cope with tumbling sugar prices, letters sent to suppliers showed.

FILE PHOTO: The sun appears behind Tereos sugar factory in Escaudoeuvres, France, November 19, 2019. REUTERS/Pascal Rossignol/File Photo

Two letters seen by Reuters indicated the firm had requested price cuts of 7% and 10%. Tereos said the reductions it requested differed between suppliers but the firm did not give figures or name the suppliers it had contacted.

Like many European peers, Tereos has felt pressure from sliding global sugar prices coinciding with a surge in supplies, partly due to the European Union’s move to scrap production quotas in 2017.

“The economic circumstances since the end of the quotas remain difficult, thus creating unpredictable conditions,” a letter to one supplier said.

“This is why ... we ask you exceptionally to grant to Tereos a price reduction of 7% compared to the current prices between our two companies in the form of tariff reduction or any other form of discount in order to allow Tereos to get through this period.”

A letter to another supplier had the same wording, but requested a 10% rebate.

Tereos said in an emailed statement that the level of rebate was personalised for each supplier.

“The idea is to regularly re-launch rounds of (re) negotiation with our suppliers, to ensure that we have the best possible purchasing conditions,” the sugar maker said. “It has nothing to do with alleged financial difficulties.”

The letters said that a cut in costs was a key element of its wider plan called Ambitions 2022, which aims to improve Tereos’ economic performance across all its activities.

“In the economic context we are going through, it is almost certain that no supplier who has received this letter will give a favourable response,” said the chairman of a company which received a Tereos rebate request. He asked not to be named.

Reuters was unable to independently establish how other suppliers planned to react to the request from Tereos.

In its emailed statement, Tereos said: “We are launching this process after the repayment of the second half of our bond loan at the start of the year, and after the publication of the quarterly results at the end of December.”

Tereos has posted losses for two years running but said last month it expected improved results in the year ending March 31, helped by a rebound in sugar prices and strong ethanol demand.

But sugar prices LSUc1 resumed have their slide due to uncertainty created by the fast-spreading coronavirus. The oil price rout is also expected to increase supply as producers are tempted to turn away from ethanol.

Tereos’ debt stood at 2.91 billion euros on Dec. 31, 2019 versus 2.69 billion on Dec. 31, 2018.

French competitor Cristal Union said last year it would halt output at two factories due to the sugar crisis and Germany’s Suedzucker (SZUG.DE) also said it would stop two units of its French branch Saint Louis Sucre.

Tereos has repeatedly said it had no plan to close sugar plants in France.

Helped by its sugar cane activities in Brazil, Tereos is the world’s third largest sugar maker by volume and a major ethanol producer. The group had sales 4.4 billion euros (3.9 billion pounds) last season.

Reporting by Sybille de La Hamaide; Editing by Veronica Brown and David Evans

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