SIFCA heads downstream
Faced with falling palm oil and rubber prices, the Ivorian agribusiness giant is making a shift to consumer products, while modernising plants and increasing yields
For several years, the Ivorian agro-industrial giant Groupe SIFCA (#143), led by chief executive Pierre Billon and chairman Alassane Doumbia, has been talking up its plans to diversify downstream in three key sectors: palm oil, rubber and sugar. The time could now be ripe to make a move.
For the past decade, SIFCA has been bound by a noncompete clause with British-dutch consumer goods company Unilever. This resulted from the 2008 transfer of all the latter’s shares in Palmci and PHCI to SIFCA and Nauvu Investments – a joint venture by Singaporean groups Wilmar and Olam. Since the clause expired last year, SIFCA is now considering selling consumer products such as detergent, soap, oil, margarine, sweets and biscuits. This move could significantly change the fortunes of Côte d’ivoire’s largest private-sector employer and its 33,000 employees.
“The group is now free to develop downstream and will not hold back,” says Hamza Haji of the ratings agency Wara. According to him, this diversification is essential for SIFCA as “it would reduce its dependence on raw materials”.
As with any agribusiness company, its results have been fluctuating in response to rubber prices in Singapore and palm oil prices in Kuala Lumpur. In 2015 SIFCA just about managed to break even. Despite the downturn, 2017 turned out to be a good year, with €84m ($94m) in net profit. But 2018 did not look so bright. “Palm oil and especially rubber prices have been on a downward trend since 2012, which has had a significant impact on the business,” says Boris Afran, a financial analyst at SGI Hudson & Cie.
Rice comes on board
The downstream shift will be a gradual process for the Abidjan-based group, which already owns consumer product brands such as Palme d’or, Dinor and Dora in edible oils, Saint Avé and Delicia in margarine and Sucrivoire for sugar.
Since last year, Sania, SIFCA’S edible-oil subsidiary, has also been marketing rice under the Dinor brand, which
could be developed through established Ivorian production chains. This portfolio expansion was made possible by Wilmar, its 27% shareholder since May 2018, one of whose main strengths is trading in Asia.
According to Jean-louis Kodo, a special adviser to chairman Doumbia, another avenue is non-food products. “Sania already processes palm nuts into refined oil and then into byproducts for the cosmetics industry,” he says. “The top customer is Unilever. Soon we will be making soap ourselves!”
To achieve this diversification, SIFCA must produce more, while continuing to satisfy its major customers such as Wilmar and Michelin – buyers of palm oil and rubber, respectively.
Green energy loan
L ast year the group obtaine d a
€90m syndicated loan from France’s
Proparco aid agency, the Dutch development bank FMO and Société
Générale to finance its transformation, agricultural development and diversification programme in green energy (biomass). “This funding is intended to support our industrial development. All subsidiaries will benefit from this on the basis of validated investment budgets,” says Kodo.
The loan was well received by analysts, who were reassured by the presence of a private bank at the table. Moreover, the funding came at the right time as SIFCA had made major investments to modernise its plants, improve its performance, increase agricultural yields and acquire land.
SIFCA is increasingly expanding beyond Côte d’ivoire. “We are developing our agricultural activities in Liberia with our subsidiaries CRC [rubber] and MOPP [palm oil], in Nigeria with Rubber Estates Nigeria and in Ghana through Wilmar Africa Ltd, Benso Oil Palm Plantation and Ghana Rubber Estates,” adds Kodo.
Liberia, in particular, offers great opportunities. The West African country accounts for only 5% of the 275,000tn of palm oil produced by SIFCA, but if the group continues planting at the current rate, “the country could represent the equivalent of half of Ivorian production within 10 years,” says Kodo. Indonesian conglomerate Sinar Mas, which is building a giant palm-nut processing plant in Liberia has partnered with SIFCA on this project.
In addition to its agricultural investments, SIFCA is modernising its production facilities. Rubber subsidiary SAPH has managed to reduce its break- even point per kilogram of rubber from $4.10 to $1.09 in five years. The group is applying this strategy across all its sectors.
The sugar sector is a protected market in Côte d’ivoire. SICAF’S Sucrivoire subsidiary operates a duopoly with SUCAF, a subsidiary for SOMDIAA group. Sucrivoire is planning to invest €158.5m by 2023 to increase white sugar production from 77,000tn in the 2016-2017 season to 170,000tn.
“SIFCA is in a comfortable position when it comes to sugar in Côte d’ivoire”, observes Wara’s Haji, “but, [as with] palm oil and rubber, the group is not satisfied with its current situation and wants to improve its margins. In addition, the Ivorian government is considering further opening the market to imports, in particular to satisfy food manufacturers”, he explains.
For SIFCA, a significant increase in production would have a twofold benefit: it would better cover demand in order to satisfy government requirements, while achieving economies of scale.
Analysts are optimistic about SIFCA’S trajectory. “SIFCA can very well reach €1bn in turnover quite quickly [compared to around €800m in 2017],” says Haji. “If commodity prices rise in 2020 – this is the trend expected by experts – and if the group succeeds in developing its finished products division, SIFCA will then be on another level,” he concludes.
Despite a downward trend for palm oil prices, 2017 was a very good year 143rd in our 2019 exclusive ranking
SAPH has improved the efficienty of its rubber production