Operations Director’s review

John Hulley
Operations Director

 

The 2013/14 operating season was once again characterised by strong physical performance with the production of a record 1,830 million tons of sugar from the 11 sugar factories currently forming part of our group operations. The downstream operations also performed well with new production records being achieved at Merebank and Glendale distilleries and Lacsa operations. The sale of electrical power generated from renewable energy and exported into the national grid in Swaziland exceeded the volumes required by the Power Purchase Agreement with the Swaziland Electricity Company for the third year in succession.

The sugar cane crop in South Africa continued to increase in volume on a year-on-year basis, assisted by favourable climatic conditions during the peak growing period in the previous season. The South African milling operations generally performed well, and assisted by above average cane quality, contributed significantly to the favourable group sugar production performance. In spite of a strong performance from the Dwangwa operation, Malawi’s sugar production was negatively affected by a reduction in cane yields and interruptions resulting from unseasonal rainfall experienced at the Nchalo operation, which contributed to a difficult season.

Our operations in Swaziland produced solid results, with a consolidation of factory performance following the expansion project demonstrating the ability to consistently achieve the designed sugar milling parameters. The Zambian factory performed well, but ended the season early due to a significant reduction in miller-cum-planter cane yields experienced towards the end of the season due to irrigation water shortages experienced during the 2013/14 growing season.

Tanzania experienced a difficult year due to unseasonal rainfall which affected factory operations and due to plant reliability challenges experienced at our Ruembe factory. Mozambique’s factory ran well, demonstrating the ability to operate consistently at above rated sugar milling capacity. The cane crop in Mozambique was, however, negatively affected by lower than normal climatic potential and this affected the operation’s sugar production for the season.

Health and safety

Regrettably, we recorded five fatalities during the season, all of which were rigorously investigated and measures employed to prevent re-occurrences of the same or similar incidents. Against this background, however, the trend in improving the 12-month rolling group DIFR performance continued with a rate of 0.11 being achieved to 31 March 2014. South Africa performed particularly well in improving their health and safety performance, with the Eston mill, Eston Beaumont farm, Eston syrup plant, Umzimkulu mill, Umzimkulu agriculture, Merebank and Glendale distilleries all achieving DIFR performances of 0. The number of disabling lost time injuries in the group reduced by 41% from the 2011 milling season.

The group TIFR (total injury frequency rate) trend, which records minor work-related injuries as well as the lost-time injuries, and which are also captured under the DIFR statistics, has also continued to demonstrate a steady reduction since May 2010, to achieve a 12-month rolling group DIFR performance of 2.17 in March 2014.

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The positive health and safety performance is further demonstrated by the following safety milestones achieved by the group over the past 12 months:

OPERATION Disabling injury-free milestones 
Kilombero (agriculture)  18.14 million man-hours 
Dwangwa (agriculture)  12.88 million man-hours 
Nchalo (agriculture)  5.58 million man-hours 
Maragra (factory)  4.13 million man-hours 
Eston (agriculture)  2.51 million man-hours 
Ubombo (agriculture)  2.34 million man-hours 
Merebank (distillery)  2.17 million man-hours 
Kilombero (factory)  2.08 million man-hours 
Dwangwa (factory)  1.88 million man-hours 
Nakambala (factory)  1.65 million man-hours 
Eston (factory)  1.00 million man-hours 

The continued improvement in performance is indicative of a successful management strategy to implement and maintain a common health and safety standard across all the operations in the group. The intention of shifting employees’ behaviour towards personal and workplace safety issues has been complimented by focusing on lead indicators and managing health and safety risks, by analysing and responding proactively to near-miss and minor incident trends.

Continuous improvement

Illovo’s continuous improvement (CI) programme has extended further across the group with the initiative implemented at Ubombo, Maragra, Umzimkulu, Sezela and Noodsberg during the 2013/14 season. The two remaining sites, Kilombero and Eston are currently in the process of commencing implementation. Nakambala has entered a second phase of development, extending the process further across the operation and introducing new strategies around asset care and reliability-based maintenance. Learnings from this implementation will be rolled out across all sites upon completion.

Speed Profiling and Lost Opportunity Planning (LOP) continues to gain momentum, with the Nakambala project rolling into a second year and with Ubombo having implemented this process to identify and address opportunities to improve production performance and capacity utilisation. During 2014, Noodsberg will implement LOP and the process will also be used to train local resources in its use and application.

Internal capability was further developed with full-time CI managers appointed to most of the operations outside South Africa, as well as the appointment of teams of facilitators within each site. Further support is provided at a group level with three CI practitioners working across all of the sites, providing support from both an implementation perspective as well as a dedicated financial resource whose focus is on greater application of financial rigour as part of the improvement project selection process.

The CI Register, which documents all current and potential improvement programmes, has been further enhanced in order for it to become a “live” document that can be filtered and sorted, in order to ensure the selection of the most appropriate initiatives from both an individual and group perspective.

The TRACC® system continues to be used to monitor implementation of the CI practices and all sites are planning their implementation against specific maturity targets covering the financial year.

The extended implementation, along with the associated development of internal capacity, is expected to continue with improving returns, over and above the R211 million contributed to group operating profit derived from CI projects in 2013/14.

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Operations review

Malawi

Sugar cane production for the year amounted to 2.4 million tons which included 416 000 tons produced by Malawian out growers. Two new out grower schemes, namely the Phata and Kasinthula phase 4 schemes came on stream during the 2013/14 season and the co-management by Dwangwa agricultural staff of a number of outgrower farms at Kazilira yielded positive results.

Cane yields and sucrose content at Nchalo were below that achieved in 2012/13 due to power interruptions from the national grid which affected irrigation supplied to both the miller-cum-planter and outgrowers’ cane. Unseasonal rainfall during the first half of the milling season also affected cane quality negatively and resulted in numerous interruptions in cane supply which in turn, contributed to poor factory performance for the 2013/14 milling season. Dwangwa performed well, achieving improvements in cane yields and sucrose content, together with new cane crushed and sugar production records in the factory during the 2013/14 season. Malawi’s sugar production was 3.5% lower than 2012/13 at 289 000 tons.

Mozambique

Lower than average sunshine hours and radiation levels also resulted in cane yields falling by around 11% compared to 2012/13 in Mozambique. Our own agricultural operations produced 463 000 tons of cane while Maragra’s outgrowers supplied 215 000 to the factory. Year-on-year, the outgrower cane production crop increased by almost 27 800 tons as a result of Maragra-assisted cane development initiatives.

A number of strategic initiatives involving both the company and our outgrowers, are continuing and are aimed at increasing total cane supply to the Maragra factory from 678 000 tons harvested in 2013/14 to 940 000 by 2017/18.

The upgraded flood protection undertaken at Maragra after the catastrophic floods in February 2000 was tested during the past season with the Inkomati River reaching similar levels. All the dykes on the estate held, with no flooding damage having being suffered by our own operations.

Milling performance during 2013/14 was pleasing with the factory demonstrating the ability to operate at its designed crushing throughput rates and most notably, achieving a very good overall recovery of sugar from cane. The season ended early due to the reduction in cane supply, resulting in a sugar production of 82 000 tons, being 3% lower than that achieved in 2012/13.

Illovo’s continued improvement in safety performance is indicative of a successful management strategy to implement and maintain a common health and safety standard across the group.

Maragra concluded a Power Purchase Agreement with the Mozambican Power Authority, being the first agreement of its kind in Mozambique within the sugar sector. This agreement enables Maragra to export surplus electrical power generated from renewable fuel in the form of excess bagasse, for sale into the national grid. It also reduces electricity imported from the national grid for irrigation purposes and improves stability of our factory operations. The benefits from this initiative will be realised in the 2014/15 season.

South Africa

Excellent growing conditions during the spring and summer periods in 2012/13, coupled with an increase in the area harvested, resulted in a 19% improvement in the amount of cane harvested by our own operations in 2013/14. Outgrower cane production increased by 13% compared to last year. Drier than normal weather conditions during the 2013/14 spring and summer months resulted in improved sucrose content in cane, and the factories capitalised on both cane volume and quality to produce 698 000 tons of sugar, representing a 17% improvement on the 2012/13 season’s performance.

The Noodsberg factory was negatively affected by high dextran levels in cane towards the end of the season. However, the Eston, Sezela and Umzimkulu factories performed well, with Sezela and Umzimkulu achieving sugar recovery and efficiency performances which ranked amongst the highest in the South African sugar industry.

Logistics

The purpose-built finished goods warehouse in Pietermaritzburg which commenced operations in March 2013, and having the ability to store 170 000 tons of sugar in a variety of pack configurations, has performed extremely well. This initiative has delivered a contribution in excess of R65 million to the group profits in 2013/14 resulting from improved efficiencies and reduced costs.

Downstream

New season production records were set at Merebank and Glendale distilleries and Lacsa. Sezela’s downstream operations also performed well with furfural production ending the season at just under 20 000 tons.

Swaziland

Lower than average sunshine hours and radiation levels and the absence of carry-over cane for harvesting in the 2013/14 season, resulted in our own estate production of 780 000 tons of cane, representing a 9.4% reduction compared to the previous season. Cane delivered by our Swaziland outgrowers, including the Ubombo-managed estate, increased by 11% to 1.447 million tons, benefiting from increased land under cane.

Total cane delivered from outgrowers under the Lower Usuthu Smallholder Irrigation Project (LUSIP) amounted to 235 000 tons, representing an 11% increase compared to the previous year. During the season, Ubombo Sugar was granted €7.56 million by the EU to develop a further 826 hectares of smallholder land, which will bring the total LUSIP scheme area under cane to 3 461 hectares by April 2015. It is expected that the development of the remaining 1 539 hectares of land under irrigated cane, in order to reach the original target of 5 000 hectares, will be developed by 2017. Mitigating steps employed by Ubombo to plant up other land to cane has resulted in 2 000 hectares being developed to date.

A reduction in crop age from 12.6 months for the 2012/13 season to 11.3 months for the 2013/14 season due to the late end to the season in 2012/13 and very good factory crushing performance resulted in a reduction in cane yields. The harvesting season has, however, been brought back into line with normal start and end dates for the operation and will contribute positively to 2014/15 crop and cane quality.

The phased implementation of improvements to our estate irrigation systems by converting from flood irrigation to centre pivots continued with a further 516 hectares transformed in 2013/14, totalling 3 612 hectares converted to date. This programme has resulted in a 20% reduction in water usage on the converted area and is delivering a yield improvement in the order of 14 tons cane per hectare.

The factory crushed a record crop of 2.227 million tons of cane and produced a record sugar production of 251 000 tons of sugar. During the season, 13 other production records were achieved. The co-generation operation also performed well with 44.80 GWh of electrical power being exported to the Swaziland national grid on a commercial basis, an improvement of 21.4% on the power exported to the grid in the 2012/13 season.

Tanzania

Operations were characterised by disappointing performances from both sugar factories. Reliability challenges at both factories and specifically Ruembe, were compounded by unplanned interruptions due to unseasonal rainfall duringthe season. Compared to the previous season, there was a reduction in both estate and outgrower cane production, resulting in 117 000 tons of sugar being produced, a 10% reduction from 2012/13. A significant amount of cane has been carried over for processing in the new season, while improvements are being undertaken at both factories to improve reliability performance in order to capitalise on this opportunity.

Downstream – distillery

The potable alcohol distillery at the Kilombero sugar mill was successfully commissioned in August 2013. The plant consistently demonstrated the ability to produce extra neutral potable alcohol of high quality and the capability to exceed design capacity parameters.

The local Tanzanian plant operators and supervisors who completed their operations training at the group’s Glendale and Merebank distilleries in South Africa and the distillery management team who completed plant-specific training at two distilleries in India, performed very well to commission and consolidate plant operations.

Management at Kilombero are currently focusing on improving the reliability of steam and electrical power services supplied to the distillery from the Ruembe sugar factory, in preparation for the 2014/15 season.

Zambia

Zambia Sugar’s agricultural operations in 2013/14 produced 1.863 million tons of cane compared to the previous season’s 1.942 million tons. Poor climatic conditions, erratic power supply from the grid and cane age in the second half of the season, contributed to a 4% reduction in our own crop. The outgrowers’ production was also not at the same level as the 2012/13 season, producing 1.290 million tons of cane. Sucrose content for both company-owned and out-grower cane was also slightly below the level achieved in the 2012/13 season.

The factory performed well, achieving new refined sugar production and overall time efficiency records, together with an improvement of overall recovery of sugar compared to last year. The reduction in aggregated cane production resulted in a lower sugar output of 393 000 tons, representing a 2.6% decline compared to 2012/13.

During the year, our Nakambala operation achieved FSSC 22000 Certification (Food Safety Certification) for the refinery and was accredited with the Kenyan Bureau of Standards (KEBS) Diamond Mark certification for household sugar. Both of these accreditations are important differentiators for accessing and maintaining customers in direct consumption markets.

John Hulley
Operations Director

Ubombo’s continuing programme to convert its flood irrigated fields to centre pivot irrigation has so far resulted in a 20% reduction in water usage and an increase in yield of up to 14 tons of cane per hectare on the converted area. Generally, growing conditions were variable across the group resulting in the production of 6.1 million tons of cane.