Sugar Co — State Owned Enterprises- Company Overviews

# Template State Owned Enterprises- Company Overviews OCPA - Ministry of Industry & Minerals Note: All currency figures are in 000's of Iraqi Dinars unless otherwise noted. 1. General Information Company Name: The State Company for Sugar Industry Sector Food Brief Description Processing and refining of sugar. Main products include refined sugar, animal feed byproducts, molasses and alcohol. Not profitable at current prices for sugar beets from local farmers. Sells all of its production to the Ministry of Trade. Revenue in 2002 (Iraqi Dinars '000s) 6500000 # of Employees 480 (Other source quoted 1,700 but this doesn't match salaries) Annual Employee Salaries & Bonus 420000 Headquarters Address Missan, Al Majar Alkabeer 2. Company Highlights Mgmt admits it can not be profitable processing raw materials (beets and cane). Forced to buy sugar from local beet farmers at prices that make it impossible to be profitable. Company thinks it may be marginally profitable buying raw sugar and refining it, but initial analysis does not support this premise. Given that sugar is a commodity product that's readily available on international markets, Iraqi sugar beet farmers would be the only other detrimentally effected party if this Company discontinued operations. OCPA recently authorized 3B ID transfer for Company to purchase sugar beet harvest. Prices paid/ton will cause significant losses for Company. Company owns harbor facility in Um Qasr worth as much as $65M USD. Company has zero cash and 7.5B ID in debt to other Government entities. Benefits from CPA policy to cancel all inter-governmental obligations. Allocated $500K USD for 2H 2003 operating budget and provided with 1 mw off of grid. 3. Facilities Name Province City Grid Damage % Power Needs Misan Admin & Production Plants Misan 4 mw Mosul Production Plants Mosul Next to airport 5 mw Value of All Plant & Equipment Before War, and Initial Purchase Dates and Prices for Major Items Mosul plant was built in 1958 and expanded in 1970. Plant is in poor condition. 4. Products Product Name Unit Measurement Design Capacity Available Capacity 2002 Production 2002 Revenue Sugar from Beets Tons 14124 10800 5867 50% of total Baker's Yeast Tons 2540 1515 818 Alcohol M^3 600 480 100 Molasses 4% of total Animal Feed Byproduct (Beet Powder) 40% of total Description of Importance of Products to Other Iraqi Industries Local sugar beet farmers rely on Company as primary customer, but they could easily switch to cotton production, which may be more profitable. 5. Customers Customer Name 2002 Revenue Subsidized (Y/N) Products Sold to Customer and Unit Pricing Ministry of Trade No Prices were inflated to help Company #2 #3 6. Suppliers Supplier Name 2002 Purchases Subsidized (Y/N) Products Purchased and Unit Pricing Local Sugar Beet Farmers No Prices were inflated to help farmers Imported Sugar Cane and Beets #3 Current Payment Terms From Suppliers 7. Imports & Exports 2002 Import Markets for Raw Materials Italy, Germany, and Brazil for raw materials and equipment. Potential Import Markets in Free Market 2002 Export Markets for Finished Products None Potential Export Markets in Free Market 8. Competition Description of Competitive Situation Market Share Description 9. Summary of War Damage & Looting of Property & Equipment Description of Damage Extensive damage to harbor facility, cane sugar farms, Misan sugar plant. Current Operating Status Operating on limited basis to process 2003 sugar beet harvest. Immediate Property & Equipment Needs To Restart Operations Total Cost to Return to Pre-War Condition 10. Inventory Status Raw Material Status No raw materials, except for seeds for 2,000 hectares of sugar beets. Months of Material Supplies & Production Rate Zero Immediate Raw Material Needs Wants loan of $5M USD to import raw sugar. Finished Products Supply (Units and Value) Has 11K tons of molasses, 2.5K tons of sugar worth $1M USD. 11. Fuel & Electricity Needs Description of Fuel Needs Misan plant needs 400 cm of natural gas. Description of Electricity Needs Misan needs 4 mw. Mosul needs 5 mw total, and is currently satifying 4mw from a deisel generator. 12. Other Needs to Restart Working Capital Needs Wants loan of $5M USD to import raw sugar. Security Needs US Army currently providing security at Mosul factory. This is sufficient to deter looters. Other facilities unknown. Other Needs 13. Strengths, Weaknesses, Opportunities & Threats Description of Strengths Description of Weaknesses Old manufacturing facilities. Local sugar farmers are inefficient, which drives up the cost of local raw materials. Description of Opportunities Description of Threats At current (already unprofitable) prices paid for sugar beets, farmers are reluctant to grow sugar beets and are instead turning to cotton. Only 700 hectares are contracted for the next season. 1,800 hectares are needed to justify restarting operations. 14. Long Term Strategy Description of Strategy Potential New Products Refining of raw sugar. Potential Partnership Opportunities Lease facility to third party manufacturers. 15. Revenue and Costs Overview Description of How Pricing Was Set Refined sugar was sold to the Ministry of Trade at 600K ID/ton ($400 USD at today's exchange rate). Open market prices for refined sugar are $230 USD per ton, not including shipping. Description of Production Costs Company loses money even at inflated prices. Refined sugar currently worth approximately $270 per ton. Company pays $20 per ton of beets which produce 80 kilos of sugar valued at $24. Molasses and pulp from one ton of beets worth an additional $6. Total value of output is $30 per ton. Gross margin is therefore 33%. After SG&A expenses, Company loses money. Potential for Profitability in Free Market If Company is freed from obligations to buy local sugar beets and instead focuses on refining raw sugar, it believes it can generate $30/ton in incremental profit, but the statistics do not support this. Company has 2.75 cent cost per pound to refine raw sugar, but difference in open market price between the two has averaged less than 2.75 cents every year since 1996. The Company is not profitable producing sugar from beets. Mgmt claims this is because cost of sugar beets is artificially high due to poor farming techniques, and with better techniques it could be profitable. One hectare of land currently produces 1.6 tons of sugar. Mgmt believes this could be improved to as high as 5.0. This would drive down the cost of sugar beets to acceptable levels, they believe.