JSE-listed Illovo’s strong cash generation and its healthy balance sheet positioned the group well to continue with its growth plans to increase cane, sugar and downstream/cogeneration production in Africa, chairperson Don Macleod said on Wednesday.
Speaking at the company’s yearly general meeting, Macleod said that Illovo’s overall aim was to become self-sufficient in its own power requirements, taking advantage of significant potential to supply surplus power into national power grids.
Illovo said it would use the factory and power cogeneration plant at Ubombo in Swaziland as a model for future sugar/power production projects.
He also reported that the construction of a new potable alcohol distillery at its Kilombero operation in Tanzania had started. “[This provides a] tangible example of the group’s objective to add value to every stick of cane. This plant would use all of the molasses produced at Kilombero and supply high quality alcohol into East African markets, once it is commissioned in mid-2013,” Macleod said.
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 started on a number of longer-term initiatives, amounting to a net increase in area of more than 10 000 ha of land, to grow the cane supply with early, positive results,” Macleod pointed out.
Meanwhile, he said that that the company was expecting a record sugar cane crop in the current 2012/13 seasons, owing to good weather.
“Factory performance to date has been generally positive with factories in South Africa capitalising on good cane quality.”
The return to more normal weather conditions in South Africa has seen the Umzimkulu sugar mill reopening in the 2012/13 seasons, with the bagasse demand required to optimise available furfural capacity at Sezela supplemented by bagasse transfers from both Umzimkulu and Eston.
Elsewhere, all the group’s South African factories have started crushing and were running well. The construction of a custom-designed central warehouse in Pietermaritzburg would significantly improve supply chain logistics in South Africa and impact favourably on sugar distribution costs.
Overall, group sugar production is anticipated to increase by in excess of 300 000 t over last year. “Prospects for downstream production have improved, particularly in respect of furfural production at Sezela which would benefit from increased cane availability from its own cane supply area together with bagasse supplies from other factories in South Africa.
“Further, 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,” he said.
Commenting on its Markala sugar project, in Mali, Macleod said that the decision to terminate further group involvement in that project was “a great disappointment”.
“Incomplete funding of the agricultural component of the project through bilateral 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,” Macleod said