Ebro proposes sale or spin-off of sugar business

By Laura Crowley

- Last updated on GMT

Related tags Sugar Wheat Sales

Spanish food group Ebro Puleva has proposed to sell or spin-off its
sugar business at a time when stability has returned to the
European sugar industry.

The company said selling its sugar sector would reduce group revenues from €2.69bn to €2.03bn, based on 2007 financial results. EBITDA would fall from €306m to €226m, said Ebro, but company debt would be "greatly reduced"​, though the exact amount is as yet unknown. "The group's business structure would also change significantly, as the brand-based and international businesses would acquire a greater weight in the group,"​ said the company. Earlier this year, Ebro said its strategic plan aimed to focus efforts and resources on its core businesses, optimise overheads, divest in non-strategic businesses and properties not tied to the group's activities and reduce debt. The company said its proposal comes amid the guarantee of greater viability and stability of the sugar industry following turbulent times as a result of the implementation of sugar reforms in 2006. The move echoes Danisco's plans to sell or split its sugar operations - a decision that was initially planned for 2010 as sugar uncertainty continued, but is now planned for this year due to more favourable market conditions. Business proposal ​In an announcement to its shareholders and investors, Ebro said it would propose to analyse the possible sale or spin-off and flotation of its sugar business and related agro-industrial businesses at its AGM in June. It would look at completing the operations within 24 months. "This proposal to study an operation of this nature is considered convenient at a time when the viability and stability of the sugar business has been guaranteed for forthcoming years, after satisfactory completion of the SugarCMO,"​ said the announcement. Sugar reform ​The European sugar reform was introduced in 2006 with the aim to improve competitiveness and market-orientation of the EU sugar sector and guarantee its long term future. Under the programme, financial incentives are offered to the less competitive producers to leave the market. The goal is to reduce the volume of sugar on the market by six million tonnes by 2010. Although a shortfall in anticipated reductions caused the EC to introduce a new package of incentives, earlier this year it announced that a total of 2.5m tonnes of sugar quota had been renounced in connection with the first round of the most recent sugar reforms. Also the EC warned that a final, non-compensated quota cut of 1.1m tonnes would likely be carried out in 2010/11 if the industry does not announce further cuts under the voluntary scheme. In October last year, Ebro said it thought companies' withdrawal from production throughout the European Union would "lead to a market situation in the period 2009-2014 of a smaller sugar supply and, consequently, greater price stability"​. It said the reforms meant Spain's sugar quota would be cut by 50 per cent, with Ebro receiving an annual production quota of around 400,000 tonnes of national sugar. Three of its sugar factories would also face closure it said, and the EBITDA of its sugar division would drop to €70m for the period 2009-2014, compared to €120m in 2005 Ebro's strategic business moves ​ This is not the first business move announced by the food group this year. Last month, Ebro reached an agreement for the sale of the Belgian company Herto N.V., which was engaged mainly in the production and sale of rice cakes and healthy snacks. The divestment coincided with a deal to sell its soft wheat business so the company could concentrate on the durum wheat segment. According to Ebro, both transactions were made within its strategic plan to focus on its core business.

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