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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 ' 18 JULY 2012
CHAIRMAN'S ADDRESS
As already reported in respect of the year ended 31 March 2012,
group turnover increased by R1.1 billion to R9.2 billion.
Despite lower sugar production, primarily as a result of
continued drought conditions in South Africa, a drive to
maximise market opportunities and a group focus on cost
control, resulted in operating margin increasing from 12.7% to
14.7%. Operating profit increased by 31% to R1 349 million and
headline earnings by 18% to R609.8 million. Headline earnings
per share rose from 112.2 cents in 2010/11 to 132.6 cents per
share.
Strong cash generation and a healthy balance sheet position the
group well to continue with its growth plans to increase cane,
sugar and downstream / co-generation production in Africa.
Investments in the group's operations continue to be undertaken
in areas that display positive and stable social, political and
economic fundamentals, have adequate water and land resources,
favourable climatic and agronomic conditions, strong local
sugar markets and good export market potential and returns.
Recent cane and factory expansions have increased the group's
sugar production capacity.
The commissioning of the major factory expansion and power co-
generation plant at Ubombo in Swaziland during the past year
was a significant milestone for the group. The project will not
only increase sugar production but also generate sufficient
electricity to cover all of Ubombo's power requirements and
provide for the export of surplus electricity into the national
grid. The amount of electricity supplied into the national grid
during the 2011/12 year exceeded the annual minimum contractual
commitment.
Illovo's objective overall is to become self-sufficient in its
own power requirements, taking advantage of significant
potential to supply surplus power into national electricity
grids from existing and new operations. The Swaziland expansion
provides a sustainable sugar/ power co-generation production
model that can be used in existing operations or new sugar
projects as appropriate.
The construction of a new potable alcohol distillery at our
Kilombero operation in Tanzania has commenced, providing a
tangible example of the group's objective to add value to every
stick of cane. This plant will utilise all of the molasses
produced at Kilombero and supply high quality alcohol into East
African markets, once it is commissioned in mid-2013.
Opportunities to produce alcohol for potable use or fuel
blending programmes also exist in Malawi and Zambia.
The group's South African operation has identified a number of
strategic opportunities to enable it to overcome the impact of
declining cane supplies, sub-optimisation of installed factory
capacity and low operating margins. To this end, with the
support of provincial and national government, private banks
and the cane growing community, work has already commenced on a
number of longer-term initiatives, amounting to a net increase
in area of more than 10 000 hectares of land, to grow the cane
supply with early, positive results.
The return to more normal weather conditions in South Africa
has seen the Umzimkulu sugar mill reopening in the 2012/13
season, with the bagasse demand required to optimise available
furfural capacity at Sezela supplemented by bagasse transfers
from both Umzimkulu and Eston. Elsewhere, all of the group's
South African factories have commenced crushing and are running
well.
The construction of a custom-designed central warehouse in
Pietermaritzburg will significantly improve supply chain
logistics in South Africa and impact favourably on sugar
distribution costs. Overall the group's South African business
is a leading player in the country's sugar industry with strong
downstream operations. Focus is therefore on maintaining a
long-term sustainable business based on a structured plan to
grow cane supplies, a cost reduction programme and capital
investment in strategic opportunities.
Failure to finalise key elements required for the promotion of
the Markala Sugar Project in Mali resulted in a decision to
terminate further group involvement in that project, which was
a great disappointment. Incomplete funding of the agricultural
component of the project via bi-lateral concessional funding to
the government of Mali and its inability to complete key
undertakings for the project to proceed, together with the
deteriorating security situation in Mali and the country's
uncertain political future, increased the project risks
associated with a greenfield development of this size and gave
the group no option but to cease its involvement.
This shareholders meeting provides the opportunity to update
you on the current state of the group's operations.
Climatic conditions across the group have been good and cane
yields, together with sucrose content in cane, are much
improved. A record sugar cane crop is expected in the current
2012/13 season. Factory performance to date has been generally
positive with factories in South Africa capitalising on good
cane quality. Overall, group sugar production is anticipated
to increase by in excess of 300 000 tons over last year.
Prospects for downstream production have improved, particularly
in respect of furfural production at Sezela which will benefit
from increased cane availability from its own cane supply area
together with bagasse supplies from other factories in South
Africa. Electricity exports into the Swaziland national grid
are forecast to be above those achieved in 2011/12. Market
conditions for sugar remain positive as the world price remains
above the US20 cents/lb level, supported by supply concerns in
Brazil and India. Furthermore, longer-term prospects for the
world raw sugar price remain positive despite the current
global surplus. Domestic sugar market offtake and prices are
expected to remain firm. Downstream prices have eased from the
record levels seen early last year but still remain at good
levels. Exchange rate volatility will continue to be a major
influence on export earnings and the conversion of foreign
subsidiary profits into rand. Overall, there has been a
generally positive start to the 2012/13 season.
D G MacLeod
Chairman
Mount Edgecombe
18 July 2012
Sponsor
J.P. Morgan Equities Limited
Date: 18/07/2012 02:58:00 Supplied by www.sharenet.co.za
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