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