Illovo Sugar has set its eyes on east and west Africa for growth as it prepares its exit from EU markets in the medium to long term, according to Gavin Dalgleish, the managing director of Africa’s biggest sugar producer.
Dalgleish said similar to the world market, EU sugar prices had continued to deteriorate as industry producers repositioned themselves for the 2017 sugar reforms.
The EU sugar industry reforms will see the EU move from being a net importer of sugar to a net exporter.
“We are getting a much lower contribution for our EU sales than we were previously, that is why we are trying to move into markets that give us better return on our sales than the EU,” he said.
In Africa, Illovo was looking at growing its footprint in Kenya, Ethiopia and west Africa. The company already operates in Malawi, Zimbabwe, Tanzania, Swaziland and Mozambique.
“Moving away from EU and maximising domestic market sales is what we [are] trying to do. This will include growing the regional market and this will involve creating pre-pack brands that we can try and position into the market and get [a] consumer pool.”
This meant that Illovo had to refresh its marketing skills base in response to the lower world prices, Dalgleish said.
“We are moving to being more dependent on sales that are in Africa.”
This would be done through expansion into the eastern and western parts of Africa.
East Africa made more geographical sense for Illovo given the company’s current footprint, Dalgleish said.
“For demographic growth, it would make sense for us to move into the fastest-growing markets in the western parts of the continent.”
For the six months to September, Illovo’s revenue declined by 5 percent to R5.9 billion as a result of a 9 percent drop in sugar production and reduced export market prices.
The group’s operating profits fell 14 percent to R1.3bn. Profits were down due to a fall in total sugar cane and sugar production, as well as the decline in EU market prices.
These results saw Illovo’s shares on the JSE close 3.63 percent lower at R26.
“We are not happy with our results. We had a very tough trading period over these six months,” Dalgleish said.
Variable weather conditions and the effects of industrial action in Swaziland and in South Africa also affected Illovo’s poor performance.
“Notwithstanding these challenges, our operations in Zambia and Mozambique are expected to achieve record sugar and cane production for the year,” he said.
Illovo’s throughput amounted to 10.7 million tons, reflecting an 11 percent decrease compared with the period last year.
The group said the season to date had been affected by variable conditions such as later summer rainfall and a very dry winter accompanied by frost damage in South Africa.
Cane production in Swaziland was affected by an industry strike and climate factors.
However, Dalgleish said in relation to full-year sugar production, Zambia had produced record production at its Nakambala factory, as well as noting operational improvement in Mozambique, which should also result in record cane and sugar production.