De­spite chal­lenges, Illovo Malawi raises prof­its to R120.8m

The Star Early Edition - - NEWS -

PRO­DUC­TION from Illovo’s oper­a­tions in Malawi is down 11 per­cent at 239 951 tons for the 2017 sea­son ow­ing to er­ratic weather pat­terns and in­con­sis­tent elec­tric­ity sup­plies that ham­pered ir­ri­ga­tion at the Dwangwa and Nchalo sugar es­tates, but the com­pany still man­aged to raise af­ter-tax prof­its to $9.6 mil­lion (R120.8m).

The Malaw­ian sugar mar­ket has also been “very chal­leng­ing” with “poor sales vol­umes” fur­ther wors­ened by il­le­gal im­ports of sugar into the coun­try although author­i­ties have started to curb this, ac­cord­ing to Illovo Malawi.

Neigh­bour­ing Zim­babwe, in which an­other South African sugar pro­ducer, Ton­gaat Hulett has oper­a­tions, has also had to take re­stric­tive mea­sures to curb im­ports of sugar, which was con­strain­ing lo­cal pro­duc­ers.

South Africa’s Illovo group has a stake of about 76 per­cent in the Malawi unit, which con­trols more than half of the sugar mar­ket in the south­ern African coun­try. For the year pe­riod to end-March 2017, Illovo Malawi has pro­posed not to de­clare an in­terim and fi­nal div­i­dend.

In the year pe­riod un­der re­view, Illovo said group rev­enues for the Malawi unit amounted to about $170.5m against $137.5m in the pre­vi­ous con­trast­ing year. Af­ter-tax prof­its jumped to $9.6m com­pared to $2.4m in the pre­vi­ous year pe­riod.

Illovo has had to re­brand and in­tro­duce value packs for its prod­ucts in Malawi to boost sales as it sought to ad­dress “af­ford­abil­ity” is­sues for its sugar prod­ucts.

“Mills com­menced crush­ing in the third week of April 2016, with some early me­chan­i­cal and op­er­a­tional chal­lenges af­fect­ing Dwangwa mill.

“Both plants per­formed to ex­pec­ta­tion dur­ing most of the 2016/17 milling sea­son and fi­nal sugar pro­duc­tion for the year to­talled 239 951 tons, which was 11 per­cent lower than the 269 389 tons pro­duced in the 2015/16 sea­son,” Illovo Malawi said yes­ter­day.

Oper­a­tions at the Dwangwa and Nchalo es­tates “were se­verely af­fected by very dry con­di­tions, with an early ces­sa­tion of the sum­mer rains par­tic­u­larly im­pact­ing the Nchalo es­tate” and this was wors­ened “by in­con­sis­tent elec­tric­ity sup­ply, as a re­sult of de­clin­ing lake and river wa­ter lev­els”, which ham­pered ir­ri­ga­tion.

This re­sulted in “stressed” sug­ar­cane crops from es­tates owned by the com­pany and those run by out­grow­ers. The crop was also af­fected by lo­calised flood­ing fol­low­ing ex­cess rains to­wards the end of 2016.

Illovo’s Malawi unit is now set to fo­cus more on ex­port mar­kets into the EU and the US to boost its sales vol­umes. The relaunch of its prod­ucts in the Malawi mar­ket re­sulted in a 6 per­cent in­crease in lo­cal mar­ket sales vol­umes.

“Eco­nomic con­di­tions dur­ing the year re­mained chal­leng­ing with for­eign ex­change and in­ter­est rate move­ments af­fect­ing the busi­ness.

“Ef­forts by the com­mer­cial teams to switch prod­uct from lower value EU bulk raw sugar ex­ports to higher value re­gional mar­kets de­liv­ered im­proved rev­enues and mar­gin,” the com­pany said.

In­fla­tion rates, with ex­change and in­ter­est rate move­ments, were likely to af­fect Illovo Malawi’s prof­itabil­ity in the year to March 2017, but per­for­mance im­prove­ment and cost-con­trol ini­tia­tives are ex­pected to “im­prove mar­gins”.

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