Sugar firms are finding themselves in dire straits due to declining business performance, but positive signals promise a more upbeat fiscal year ahead.

The recently released financial statement of Son La Sugar JSC (SLS) showed that in the fourth quarter of the company’s 2017-2018 fiscal year from July 1, 2017 to June 30, 2018, it fetched VND144 billion (US$6.3 million) in revenue, equal to the number recorded one year ago, but its post-tax profits plunged by 39.3%.

For the whole fiscal year 2017-2018, the company’s post-tax profit decreased by 28.9% on-year to VND116 billion (US$5.13 million). Lower profits against augmenting asset value have led to a sharp fall in the company’s major profitability indexes.

Accordingly, its return on asset (ROA) ratio fell to 8.2% from 17.8% in the same period last fiscal year, while its return on equity (ROE) ratio dropped to 24.2% from 38.8%.

The SLS results reflect a development shared by most other sugar firms in the 2017-2018 fiscal year.

In the central region, Lam Son Sugar JSC (LSS) even incurred VND11.4 billion (US$504,400) in losses in the fourth quarter of the fiscal year, compared to a profit of VND18.2 billion (US$805,300) in the same period the year before.

In the whole fiscal year 2017-2018, LSS’ revenue dropped by 39%. As the company produced profits in the first three quarters, LSS still reported VND3.8 billion (US$168,100) in full-year profit, a mere 2.8% of the results of the last fiscal year.

In the same vein, Kon Tum Sugar JSC in the Central Highlands region saw its full-year profit fall by 78% on-year to a mere VND9 billion (US$398,200) in the 2017-2018 fiscal year.

One of the sector’s best performers, Thanh Thanh Cong Bien Hoa Sugar JSC (SBT), has also suffered falling profits.

In the fiscal year 2017-2018, SBT posted VND10.36 trillion (US$458 million) in consolidated revenue, a 2.3-fold increase, and post-tax profits of VND546.7 billion (US$24 million), up 61% compared to the previous fiscal year.

This outcome, however, came after it merged with Bien Hoa Sugar JSC (BHS) in October of last year.

In the fiscal year before the merger, SBT and BHS posted VND339 billion (US$15 million) and VND289 billion (US$12.7 million) in post-tax profit, respectively, reflecting that SBT’s post-tax profit after the merger was still far lower than the combined post-tax profits of SBT and BHS before the merger.

Some new movements in the market, however, support more upbeat growth prospects for sugar firms in the fiscal year ahead.

In June, the prime minister advocated the Ministry of Industry and Trade’s proposal on the continued application of a tariff quota regime for the sugar sector until the end of 2019.

This means Vietnam will begin implementing its commitments under the ASEAN Trade in Goods Agreement (ATIGA) towards the sugar sector from 2020, paving the way for local sugar companies to become better prepared to meet integration requirements.

As for the sugar price, according to forecasts by Rarobank, a Dutch bank with one-third of products and services serving the agricultural sector, the sugar price in the world market may resume its upward momentum in late 2018 on account of the falling supply and surging demand.

In the domestic market, a June analytic report by Ho Chi Minh City Securities Corporation (HSC) forecast an average 4% growth in sugar demand annually over the next few years to keep up with the rising local consumption of confectionary (which is expected to grow by 5-6% a year), milk products (10% a year), and soft drinks (7% a year).

This figure almost doubles the world’s average growth.

VIR