Imperial Sugar sells subsidiary to manage losses

By Lorraine Heller

- Last updated on GMT

Related tags Sugar beet

US sugar processor Imperial Sugar will sell subsidiary Holly Sugar
Corp. as low margins coupled with high energy costs have put
pressure on the company.

The announcement comes just two weeks after Imperial published its third quarter results, revealing heavy losses.

"The high cost of energy and the cyclical nature of our industry have both turned against us in a major way,"​ Imperial's chief executive officer Robert Peiser had said in a statement.

Holly Sugar, which represents about 15 per cent of Imperial's production capacity, will be sold for $50m (€41m) to sugar processor Southern Minnesota Beet Sugar Cooperative.

The sale includes two beet sugar factories, a distribution facility and a beet seed processor. Supply to customers should not be affected, as production will be taken over by the new owners, the company said.

"This transaction allows us to somewhat reduce the commodity nature of our business, focus our attention on our core refineries and our value added retail and foodservice strategy, and increase the cash flow potential of the company's operations,"​ said Peiser.

The sale is expected to reduce the company's working capital requirements, which are primarily a result of its Holly Sugar operations. During the six-month processing and stock building period at the two sugar beet plants, the company's financing needs would shoot up in order to fund the higher inventory levels.

This reduced the company's liquidity by $40m (€33m) in the current financial year. A reduction in the need for this extra financing will be "a benefit of the transaction"​ according to Imperial's Hal Mechler, though he added that the necessary finance had not posed a problem for the company.

Early this month Imperial reported a net loss of $4.5m (€3.7m). Its gross margin as a percentage of net sales was also down to 3.6 per cent from last year's 9.4 per cent, primarily due to lower sales prices and higher costs.

The company expects further declines in operating profits throughout the next quarter, as a result of continuing "significant challenges related to the energy and sugar market environments for the remainder of the year."

Related topics Commodities Cocoa

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