Imperial Sugar Company Annual Report Online

Imperial Sugar Company’s 2009 Annual Report – “Growing Faster, Growing Stronger, Growing Better” – is now available online (click here for the 4MB download).

Here is the letter to shareholders from President and CEO John C. Sheptor:

Imperial Sugar strengthened its position in the U.S. and Mexican sugar industries during fiscal 2009, achieving important milestones that fortified our business foundations and positioned the Company for future growth.

I am immensely proud of our associates and partners who have worked hard to overcome substantial challenges. Their forward thinking actions have allowed the Company to emerge a more capable producer and supplier of products as well as an advocate for the sugar industry. Throughout the year, our team executed well, identifying and solving important issues for customers, creating new opportunities and positioning the Company for the future.

As a result of their efforts, we have renewed our refinery technology, built stronger customer relationships, successfully expanded our operations beyond the U.S. border into Mexico, broadened and improved the profitability of our portfolio, and demonstrated our ability to develop new products.

The Drivers of Business Success

Over the past two years, Imperial Sugar has been focused on four critical drivers that reflect our performance goals, our ambitions and how we do business. These core strategies provide the clear direction required to carry out our mission and create superior value for our customers, stockholders and employees. They are an unwavering commitment to:

• Partnering with customers to add value, differentiate Imperial and solidify relationships;
• Enhancing the performance and profitability of our core sugar franchise;
• Expanding participation in the growing organic, natural foods and fair trade channels; and
• Growing our presence throughout North America and, in doing so, maximizing value creation from our joint ventures and alliances.

During fiscal 2009, we made significant achievements in each of these critical areas that have strengthened our competitive position. While our operating and financial results were impacted by reduced volumes and higher costs related to the industrial accident at the Port Wentworth, Georgia, refinery in 2008, we believe that adherence to these strategies has allowed us to become a stronger company and has positioned Imperial Sugar to achieve success in 2010 and beyond.

Delivering Shareholder Value

John C. Sheptor, President and Chief Executive Officer

Delivering value for shareholders through operational excellence, capital stewardship and profitable growth remains the centerpiece of our strategy. We appreciate the confidence investors have shown as we successfully rebuilt the Port Wentworth refinery, resolved business risk in Louisiana, grew the contribution from new operations and sustained our liquidity throughout this period of heavy investment. We understand that earning strong returns on the capital that our shareholders entrust to us is the job of every Imperial employee and one that will create long-term value for shareholders.

A Customer-Focused Company

We have made significant progress in becoming a customer-focused company that anticipates needs and provides innovative solutions that deliver results. Our product development process begins with conversations with customers that help us understand their needs and respond with solutions that have a positive impact on their success. We strive to sustain our preferred partnership with customers through effective new product development, high-quality service and the highest standards of food safety.

Our research and development efforts have led to five important new product launches, including Redi-Measure™ brown sugar packets, Baker’s Supreme™ frosting mixes, food service ready-to-use liquid sweetener for beverages, one and two-pound granulated sugar boxes and new glazing formulations for producers of baked goods.

Of equal importance, we made significant progress in our efforts to improve customer service. During 2009, we substantially improved our right-first-time performance, which has led to an increased share of sales with key retailers. Food security investments to initiate Safe Quality Food (SQF) certification and to improve American Institute of Baking (AIB) audit performance are helping to assure customers of the safety and quality of Imperial’s product offerings.

Transforming Refinery Assets

We are also working to achieve the competitive advantages and market leadership enjoyed by industry technology leaders through the transformation of our refining assets to some of the industry’s most modern facilities. The reconstruction of our Port Wentworth refinery has elevated our drying, bulk loading and packaging technologies to state-of-the art. More advanced equipment design is expected to lead to improved productivity, food safety and dust management. With the formation of the LSR (Louisiana Sugar Refining) joint venture with Louisiana growers and millers and Cargill now finalized, construction of a new state-of-the-art, 3,100 tons per day refinery has commenced, and when completed, will result in the retirement of Imperial Sugar’s existing refinery built originally in 1898. Following the start up of the LSR refinery in 2011, Imperial will own or participate in two of the most modern sugar refineries in North America.

Safety improvements at both of Imperial Sugar’s refineries have led the industry in addressing combustible dust hazards. In order to create the safest work environment in the sugar industry, we retained the world’s leading experts in dust control and mitigation, fire protection, electrical classification and design of food processing facilities to plan and improve the Company’s refineries.

Wholesome Sweeteners Growth

Even in the face of a serious economic recession, top-line growth for Wholesome Sweeteners, our 50% owned joint venture, exceeded 16% for fiscal 2009, while the retail share of its product mix rose to 45%, improving portfolio profitability. New product launches of club store agave syrup packaging and the introduction of the first Fair Trade Organic squeeze honey product have supported growth initiatives. The Company also completed significant supply chain improvements designed to lower costs and improve profitability. Imperial has the option to acquire our partner’s 50% share next year.

CSI Success

Our Mexican joint venture, Comercializadora Santos Imperial (CSI), had stellar performance in fiscal 2009, more than doubling its year-over-year earnings contribution. This was accomplished, in part, through our efforts to overcome quality perception issues of Mexican sugar sold in the U.S., which allowed us to sell sugar in the most profitable markets on both sides of the border.

Pricing in Mexico has risen sharply throughout the year as large exports to the U.S. have tightened supplies available for Mexican buyers prior to the start of the new crop late in 2009. Lower sugar cane production in 2009 and another small crop projected for 2010 has contributed to the tight supply in Mexico and prices are expected to remain strong throughout the next fiscal period. In the year ahead, we will be working closely with our partner to explore ways to leverage the profitability and geographic reach of this venture.

Industry Trends

The U.S. Department of Agriculture (USDA) forecast predicts tighter U.S. sugar supplies for the coming year as domestic production is not expected to be sufficiently large to replenish the low level of stocks in the U.S. and satisfy relatively strong demand. During 2009, Mexican imports played an integral role in fulfilling U.S. demand as a weak peso allowed Mexican suppliers to sell larger than normal quantities of sugar into the U.S.; however, depleted inventories and lower production levels may prevent Mexico from meeting U.S. supply requirements in 2010. As a result, raw sugar imports from other sources will be required and capacity utilization is expected to be higher than normal to meet the projected demand.

In addition, excessively wet conditions in Brazil coupled with two years of drought in India have led to tight global supply, raising world prices to 28 year highs. The increase in world raw sugar prices has pushed U.S. raw sugar prices upward as domestic buyers seek to sustain the attractiveness of the U.S. quota to international producers. U.S. refined prices have risen in response to these industry dynamics as refiners attempt to maintain margins in view of higher raw sugar costs. Industry conditions, coupled with a renewed appreciation for the natural goodness of sugar, bode well for the U.S. industry in the year ahead.

Looking Ahead

The process of fortification continues in fiscal 2010 as we build on last year’s initiatives and take our next steps. We have been successful as an innovator, in leading change and in partnering with others. Our customer-first culture has led to enhanced relationships and new opportunities. The foundations being laid today enable us to grow faster, stronger and better tomorrow. As we look ahead, we remain focused on our goals to become:

• One of North America’s premier sweetener companies;
• The leading source of organic, fair trade and natural sweeteners;
• The industry leader in innovation, service and safety; and
• A change agent and strong advocate for the sugar industry.

I view the future of Imperial Sugar Company with optimism and confidence. In 2010, our focus is on sustaining and expanding this leadership and searching for new opportunities to grow and create value. We step forward into 2010 with a stronger base business and with opportunities for new ventures, new sales channels and new geographies. I thank our employees for their dedication and hard work and our shareholders and board of directors for their support and confidence.

John C. Sheptor
President and Chief Executive Officer

Click here to download Imperial Sugar Company’s 2009 Annual Report (4MB PDF).

Click here for the Company’s Investor Site.