New EU Sugar CMO will compel AGRANA to Rationalize Operations

Date: 23.01.2006

Retention of Austria’s Status as a Sugar-Making Country Essential
Today, the Supervisory Board of AGRANA Beteiligungs-AG met to discuss the effects of the reform of the EU sugar CMO agreed in November 2005 and developments in the WTO and their consequences for the enterprise.  Despite the big cuts in output of one third that will be necessary across Europe, AGRANA intends to maintain its sugar output at the level of its full EU quota.  However, as a result of WTO decisions, it will no longer be able to use surplus production capacities to make sugar for export.

Combined with lower sugar prices and sizeable payments to the restructuring fund, this will greatly intensify pressures on the industry to reduce costs.  Far-reaching rationalization and concentration are therefore unavoidable.  AGRANA will be closing two of its 11 sugar factories so as to step up the use of available capacities at its remaining factories in the countries concerned.  This restructuring will affect the Hohenau factory in Austria and the Rimavská Sobota factory in Slovakia, neither of which will be processing beet any more during the 2006|07 campaign.

Austria: Tulln and Leopoldsdorf sugar factories to be given a secure future
At present, the group’s three factories in Austria have a total daily beet processing capacity of roughly 40,000 tonnes.  Since sugar exports are no longer going to be possible, limiting Austria’s future maximum permissible beet harvest to some 2.6 million tones, this would imply a campaign of just 65 days if all three factories were running, making AGRANA uncompetitive.  On the other hand, an extended campaign of nearly 100 days of processing will enable AGRANA to produce Austria’s entire sugar quota in just two factories.  Concentrating production in this way will ensure the continued operation of the Tulln and Leopoldsdorf sugar factories with their total workforce of approximately 450 people under the new sugar market regime.

Hohenau can only continue to operate as a storage facility.  Restructuring in Hohenau will initially affect 136 employees (whereby most of the lay-offs will not take place until summer 2006).  The 20 apprentices at the factory will be able to complete their training with AGRANA.  The sugar storage silos at the Hohenau factory will remain in operation with 10 employees.  In addition, between 10 and 15 employees will be taken over by other group divisions.  Part-time models for older employees combined with a social plan will bridge the period until retirement for 30 employees aged over 55.  AGRANA is cooperating with the works council to develop solutions for some 20 employees aged less than 55 within the scope of the social plan and a so-called “labour foundation” re-employment scheme.

Talks on future uses for the Hohenau facility
The group is not only concerned with the future of the factory’s staff.  It is also determined to find a good use for the site itself.  To that end, it has initiated intensive discussions within the Raiffeisen organization and with Lower Austrian business-location company EcoPlus regarding possible future commercial uses for the factory site and employment opportunities for former staff.

The group’s bioethanol offensive will create additional jobs
More than 50 additional jobs will be created by the bioethanol factory in Pischelsdorf, Lower Austria, whose construction has already been decided and is currently being planned.  Forty-five of those jobs will be reserved for existing staff at the Hohenau factory.  The new factory, which will begin operation in the autumn of 2007, will process over 500,000 tonnes of agricultural raw materials a year.  As a result, it will also provide a secure livelihood for numerous farming families.

In addition to changing economic conditions, rationalization in Slovakia is also being made necessary by small factory sizes.
The beet previously processed by the sugar factory in Rimavská Sobota, Slovakia, which has a daily processing capacity of just 2,500 tonnes, will now be processed at the Sered factory.  Minor outlay on enlarging capacities at Sered will make it possible to produce the entirety of AGRANA’s share of the Slovakian EU sugar quota (56,670 tonnes) in a maximum of 110 days.  Talks with staff representatives about a social plan for the 123 employees affected by the factory’s closure will begin in the next few days.

These measures, which will cause one-off restructuring costs of about € 25 million during the 2005|06 financial year, will create the basis for sustained and economical sugar production by the AGRANA Group and will ensure that AGRANA remains competitive even under the new market conditions.