Illovo Sugar Limited (ILLOVO.mw) HY2022 Interim Report
During the six month period ended 28th February 2022, agricultural and factory operations registered commendable output at both estates even though Dwangwa experienced some intermittent plant reliability challenges towards the end of the cane crushing season, which necessitated an extension of the crushing season into December 2021. An improvement in power supply from the Electricity Generation Company (EGENCO) in the first four months coupled with favourable weather conditions benefitted agricultural operations resulting in high overall tonnage of cane per hectare. The extended dry weather enabled a one month extension of factory operations at Dwangwa, even though this had an adverse impact on the agricultural operations requiring increased irrigation of the sugarcane which in turn resulted in a higher electricity cost. Infestations of yellow aphid and red spidermite due to the heatwave were a cause for concern, and immediate and costly pest control measures had to be pursued to contain the same.
Grower cane yields at both estates were within expectation. The Group will continue providing the required financial and operational support to ensure sustainable supply of grower cane. Nchalo closed the crushing season on 12th November 2021 having registered excellent factory throughput in the season, and Dwangwa closed on 13th December 2021.
Both mills immediately started their offcrop maintenance programs, attending to matters that had led to plant downtime in the just ended season as well as preparing the machinery for improved crushing in the subsequent season. Implementation of capital projects to support factory recoveries and cane yield improvements per hectare continue to be the main strategic area of focus for the group.
The country had a late start to the rainy season and experienced heavy rains between January and early March 2022 including the effects of two cyclones, Ana and Gombe.
Cyclone Ana brought in extensive flooding in the Chikwawa area, negatively impacting lives for the surrounding communities and some of the staff at Nchalo Estate. The main access road to the estate and beyond was cut off, and agricultural operations and offcrop maintenance had to be stalled for several days. EGENCO power generation was lost as Kapichira Hydro-Electric Power Plant was damaged by the cyclone, necessitating extended usage of diesel generators for provision of power to the estate. The business has assessed the overall impact of the damage and planned on recovery procedures to ensure continued profitability against this backdrop.
The Ministry of Health reported a welcome reduction in COVID-19 infections over the period under review. The business also noted a marked reduction in the adverse impact of the pandemic on its operations and continued to be cautious of any future variants that might be disruptive.
Domestic sugar sales improved significantly, buoyed by the Iponyeleninso Kwakuya promotion, continued execution of the Route to Consumer strategy for delivery of sugar to the last mile customer, general sales activation initiatives, and reduced price arbitrage with neighbouring countries due to the depreciation of the Malawi Kwacha against major trading currencies. Interventions by the Malawi Revenue Authority and the Ministry of Home Affairs further assisted to reduce illegal imports of sugar into the country. Sugar exports to Europe, the United States of America and the Africa region registered a slight reduction against a background of challenging logistics due to COVID-19 impacts on trade, rescheduling of vessels at port, and availability of containers for shipping. There was however a marked improvement in demand for sugar especially in the eastern Africa region which the business continued to enjoy.
The business continues to focus on revenue growth, cost reduction, operational excellence and optimized application of all its available resources to enhance value and growth in profitability. A relentless pursuit of unparalleled quality in all product formats and pack sizes as well as achievement of ultimate customer satisfaction remain key to the Illovo brand. The business endeavours to consistently contribute significantly to the thriving Malawian community and the country’s public finances.
It is expected that medium-term agricultural operations and yields will improve following recovery from the impact of the cyclone. In the short term reduced power supply from EGENCO following the damage to Kapichira Hydro-Electric Power Plant is anticipated to adversely impact operations. However a return to better weather patterns and the benefits of drip irrigation are expected to further support the agricultural yield improvement programs. Following the successful of crop maintenance program, additional focus on optimal factory recovery and preventive maintenance should enable both plants achieve better throughput for the rest of the year.
The business will continue to invest in commercial and logistical operations through commendable product and service quality, direct delivery of sugar to the end consumer, refinement of approaches to the very challenging deep water and other export markets, marketing promotions and other sales activation initiatives as it tries to maximize value for all its stakeholders.
Inflation, bank interest rates and exchange rates for the Malawi Kwacha against major trading currencies will continue to have a notable impact on profitability for the business. The Group will however continue to apply significant effort at cost reduction, operational efficiency, and sales growth in the interest of continued increase in profitability and a marked contribution to a thriving Malawian community.
Directors have resolved that an interim dividend of 556 tambala (2021:400 tambala) per share in respect of the ordinary shares of the company for the six month period ending 28 February 2022 be paid to the shareholders appearing in the register of the company as at close of business on 17 June 2022. Payment date for the interim dividend is 30 June 2022.
12 May 2022