ILLOVO SUGAR LIMITED - Annual General Meeting 17 July 2013 Chairmans Address

Annual General Meeting 17 July 2013
Chairman’s Address

ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846


Annual General Meeting 17 July 2013
Chairman’s Address


As already reported in respect of the year ended 31 March 2013,
group turnover increased by 21% to R11,1 billion and with the
operating margin increasing from 15% to 17% operating profit rose
by 41% to R1,9 billion. Headline earnings were up 43% at R872,5
million and headline earnings per share of 189,6 cents reflected
growth of 43%.

A strong balance sheet, healthy cash generation and good cane
sugar assets across Africa position the group to continue with its
growth plans to increase cane, sugar and downstream / co-
generation production on the continent. The group continues to
evaluate opportunities for further footprint expansion but careful
assessment of the risk will be crucial to any new opportunity
being progressed. Ethanol and molasses beneficiation, power co-
generation and increased furfural production opportunities
continue to be investigated across the group.

The recently completed new custom-designed warehouse and
distribution facility in Pietermaritzburg is fully operational and
will provide meaningful storage and logistics benefits to the
South African business. The new potable alcohol distillery in
Tanzania is nearing completion and is anticipated to commence
supplying product to the market in August 2013. This will be a
useful contributor to our operations in that country.

The shareholders’ meeting provides the opportunity to update you
on the current state of the group’s operations.

Growing conditions across the group have generally been good.
Factory performance to date has generally been positive and
overall group sugar production is anticipated to increase to
around 1,9 million tons. Prospects for downstream production
remain favourable with around a 10% increase in furfural
production anticipated. However market conditions are difficult.
Domestic sugar pricing in South Africa and Tanzania is under
pressure due to the impact of low cost imports. In Malawi,
strengthening of the Malawi kwacha since March 2013 has driven a
5% price reduction in that market. The world sugar price
continues to be negatively impacted by the global surplus of
production over consumption predicted for this year. Futures
prices have fallen and are currently trading below 17,0 US
cents/lb, but are testing the point at which Brazilian producers
may switch to ethanol production. Current world prices are now
below the cost of production for most sugar producers worldwide.
The longer term view continues to be for prices to increase as
consumption rises and supplies are constrained in most larger
sugar producing countries. The weakness in the world price is
impacting regional prices although the group enjoys a geographic
price premium in the markets supplied from Zambia and Malawi.
Currently contracted prices in the EU are in line with
expectations but reductions are foreseen later in the year as
sugar availability improves across Europe. The group is taking
steps to achieve a better market sales mix in order to maximise
revenues. Longer term, the EU has concluded the outline reform of
their sugar regime which will result in an end to beet production
quotas from October 2017. This is likely to put pressure on the
EU market as domestic sugar production will probably increase.

Exchange rate volatility will continue to be a major influence on
export earnings and the conversion of foreign subsidiary profits
into rand. The current weaker rand is positive for earnings of
the group.

Overall, there has been a positive start to the 2013/14 season on
the production front and the rand exchange rate is advantageous to
earnings but market conditions are challenging.

It is with regret that I have to announce that Mr Graham Clark,
who has served on the Illovo board since 1997, and as Managing
Director since 2009, has given notice of his intention to resign
from the Illovo board with effect from 31 August 2013. He will
leave Illovo at the end of September 2013 in order to ensure an
orderly hand-over to his successor. Mr Clark’s intentions are to
pursue a new career opportunity elsewhere in Africa.

I would like to thank Mr Clark for his meaningful contribution to
the Illovo group over a long period of time and wish him well in
his new endeavours. I am pleased to announce the appointment of
Mr Gavin Dalgleish as Managing Director of Illovo Sugar Limited
from 1 September 2013. Mr Dalgleish currently serves as Illovo’s
Group Operations director and has significant experience within
the Group and the sugar industry generally and we congratulate him
on his appointment.


D G MacLeod
Chairman

Mount Edgecombe
17 July 2013

Sponsor
J.P. Morgan Equities South Africa Proprietary Limited

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