Managing Director’s interview
| Gavin Dalgleish Managing Director |
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Appointed to the position of Group Managing Director on 1 September 2013, Gavin Dalgleish has spent his first six months at the head of Africa’s biggest sugar producer and downstream products manufacturer. Gavin was first appointed to Illovo in 1988 as a postgraduate student under Illovo’s Engineer-in-Training programme, and rose through the ranks gaining internal and external experience including a three-year posting to Australia, at the helm of an ABF subsidiary. He returned to Illovo in 2011 and soon after was appointed to the position of Group Operations Director, and then to his present position to lead Illovo’s African cane, sugar and downstream business operations. His thoughts on the current state of the business, its opportunities and challenges, and his aspirations for the future, are captured in this summarised account of a one-on-one interview…
This is my first report to shareholders as Managing Director. Since my appointment, I have spent considerable time reviewing the business and I’m pleased to say, as expected, that the company is in great shape thanks to my predecessor and the excellent executive team that he had put in place. I have also been looking at possible new growth opportunities as well as current projects to see if these could be accelerated in response to a dynamic commercial environment in sugar. This review is ongoing.
Our vision for the business remains as before – to be a world competitive and highly-efficient African company, adding value to every stick of cane. Critical drivers for Illovo’s financial and operational performance in 2014 included the resilient domestic markets in most countries in which we operate, geographic diversity and in South Africa, a strong industrial customer base and significant downstream business. Despite headwinds facing the global sugar market, Illovo’s growth strategy of adding value to every stick of cane remains fundamental – we will continue to accelerate investment in our downstream operations, maximise production and optimise our sales mix to increase revenue and margins, and continue the relentless drive to take out costs.
External factors
Lower sugar prices are prevalent in the world market largely due to a fourth year of global production surplus, a depreciating Brazilian Real and also soft pricing in the EU as a result of market positioning by major sugar producers ahead of quota abolition in 2017. The EU currently applies production quotas to create a structural deficit and in turn, least developed countries are allowed preferential access to that market to close the deficit gap. While the preferential access will remain after the quota abolition in 2017, we believe the market will be commercially less attractive.
The lower world price does not directly affect Illovo as we are sustained by our strong domestic markets, and the only direct exposure we have to world markets is in our share of export proceeds in South Africa. The increase in the Dollar-based tariff import reference price has recently slowed down imports into South Africa and, consequently, the amount exported from the country, further reducing our exposure to global prices. We do experience the indirect impact of lower world sugar prices in our regional African markets. These markets are attracting increasing focus from many producers as one of the last remaining large deficit markets. Based on strong consumption growth, current projections indicate a six million ton deficit on the continent by 2020. Illovo is extremely well placed to meet the escalating demand from our operating footprint in Africa.
The recent publicity linking sugar consumption to obesity has concerned Illovo. Illovo understands that obesity is a complex world-wide issue that needs to be addressed through a collaboration of all relevant stakeholders from government to the private sector. Illovo advocates the promotion of a balanced lifestyle, with AB Sugar leading the way to find an industry-wide, partnership approach to solving this complex problem. In addition, Illovo is a long-standing sponsor of a number of sporting events, raising awareness about the importance of physical activity.
Investment, innovation and shareholder value
Illovo has made some major investments recently, including our state-of-the-art distribution centre, located in Sobantu, just outside of Pietermaritzburg in KwaZulu-Natal, South Africa. The centre serves as a central distribution point between Illovo’s production facilities in the province and its retail and industrial customers across the country, driving down outbound logistics costs. Our co-generation project at Ubombo Sugar in Swaziland currently provides an alternative source of revenue for the company and will ultimately supply around 15% of that country’s total power requirements. Another investment, the new potable alcohol distillery constructed adjacent to the Kilombero sugar mill in Tanzania, is a template for future Illovo plans to replicate in other countries of operation to meet the growing demand for potable alcohol and potentially fuel ethanol.
Kilombero’s new “best-in-class” potable alcohol distillery is a template for future Illovo plans to replicate in other countries of operation. Annual ethanol production capacity is 12 million litres. |
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Our distillery in Tanzania boasts best-in-class fermentation and distillation design technology. Furthermore, we are excited to see the development of a number of new innovations across our areas of operation which will significantly reduce costs. These include new precision farming techniques and satellite tracking systems for vehicle utilisation. We have also added unique soil mapping methods for fertiliser applications. We will continue to look for other workable investment prospects and will always seek out ways to continually improve on our current processes – Illovo’s focus remains on enhancing efficiencies, lowering costs and boosting shareholder value and returns.
Accountability
At Illovo we want our people to feel engaged in the business, feel confident they have the means and ability to execute their tasks and then feel accountable to produce the required results.
The development of our people is a critical component to Illovo’s sustainable growth plan. Our vision for our employees is to make them feel personally empowered to drive performance improvements, equipping them with the tools and skills to deliver and be recognised for their valuable contribution to the group’s goals. Consistent engagement is an important pillar of our continuous improvement initiative, now being implemented across the group, and our values driven leadership approach underscores that it is not only “what you achieve” but also “how you do it”.
It’s all about integrity
Going forward, we have even more opportunities to examine our impact on the environment and on the communities where we operate. Not only do sustainable practices make business sense, they also reflect our responsibility for and accountability to the environment and our surrounding communities. We aim to continue building on the exemplary safety record of our factories and fields, our employee well-being programmes, our partnerships with local and international non-governmental organisations and the reduction of water usage and carbon emissions. Our strategic ambition is to ensure reliable cost-efficient energy supply to our operations, strive towards 100% renewable energy use and where attractive, to export power to national grids. Currently, we are meeting 90% of our own energy requirements from renewable bagasse fibre combustion and as previously mentioned, we sell surplus power into the Swaziland national grid in excess of the contractual obligations entered into with that country’s power utility – another template to be replicated across our business where economically effective.
Integrity is synonymous with our organisation and our employees embrace this value and the principles of sustainability in everything they do. Integrity is also leveraged within our supply chain – a key differentiator for our industrial customer base. The 2013 World Economic Forum Global Competitive Survey rated South Africa first in corporate governance regulations. Through our listing on the JSE, investors are assured of the highest level of governance. Illovo is proud of its ongoing inclusion on the JSE’s Socially Responsible Investment (SRI) Index and in 2013, was among the six companies who met the JSE’s SRI Index “Best Performer” threshold. Also in 2013, our Zambian subsidiary was awarded the Corporate Governance award by the Lusaka Stock Exchange (LuSE), which recognises companies that adhere to good corporate governance standards exhibited through its reporting to stakeholders.
What’s next?
We are very optimistic about our future and are currently in a strong financial position to capitalise on numerous branding opportunities on a retail level in first-world markets and to strengthen our downstream product offering, benefiting from the success of our distillery commissioning in Tanzania. Ethanol is a valuable growth area for us, with plans in the pipeline to expand ethanol and furfural production in Zambia, South Africa and Swaziland. Our differentiated speciality sugars will be another important area of focus and growth. We have direct access into EU and UK markets, and there has also been a shift away from EU sales to regional markets where we believe we will realise better returns.
Of course, the reforms in EU markets and the global production surplus will present short-term challenges. However, we see abundant opportunity in the deficit regional markets in neighbouring countries. Our footprint gives us a comparative advantage in supplying these markets and the short-term outlook is responsible cost reduction and margin growth, with a long-term goal of driving revenue diversification. Through increased downstream production we are confident that our strategic focus areas, as well as our continuous improvement programme, will bring about positive changes across the group, sustain our growth and ensure momentum going forward into 2015.
Gavin Dalgleish
Managing Director