Chairman's statement

The group continues to evaluate opportunities for further footprint expansion in Africa. Ubombo, Swaziland


The past year was a disappointing one for the group. Abnormal weather conditions which hampered production and challenging market conditions adversely affected the financial results. Group sugar production was below that of last year mainly due to the impact of drought and frost in South Africa whilst continuing low world sugar prices and a significant declining trend in EU sugar prices and currency impacted negatively on revenue realisations from the export market. Overall financial results reflect a 7.7% decline in HEPS. I am, however, pleased to report a strong performance from our downstream businesses which now contribute 16% of our operating profit. The group has a strong balance sheet, healthy cash-generation and sound cane, sugar and downstream assets across Africa and investment in strategic projects such as the new refinery in Zambia, energy saving projects across the group and marginal cane and sugar production expansions will have a significant positive impact on the business in the future.

Business/operating environment

The international economic environment remains unsettled with volatile currencies and lower commodity prices and although the Southern African region has seen improved economic growth compared to many other parts of the world the operating environment is challenging with high levels of unemployment, lack of infrastructure and extreme poverty. Illovo, like others operating in the region, needs to deal with the economic, market, labour and socio-economic challenges facing the continent.

The lacklustre market conditions in South Africa are a concern as they influence the economic, social and political environment. It is vital for the sustainability of South Africa that the view of the country by the world investment community improves because without economic growth and infrastructural investment the current levels of unemployment, inadequate education and labour unrest will continue to hinder the country’s progress. It is important for government and business to work together to promote stability and remove policy uncertainty to achieve real growth in the economy. In particular, the severe problems experienced in the country’s electricity supply has had a considerable negative impact on economic growth and an action plan to ensure that the existing systems are properly maintained and new sources of energy, both fossil and renewable, are brought on-stream as soon as possible is a pressing need. It is disappointing that many potential renewable energy projects have been delayed due to a lack of urgency with progressing applications for electricity generation by private companies and ensuring that realistic investment tariffs are implemented. In addition, uncertainty regarding land ownership needs to be resolved timeously if food security is to be ensured and the need for adequate finance is a pre-requisite if new commercial farmers and communities who become involved in agriculture are to be successful. The impact of high inflation and interest rates on the people in Malawi is a particular worry to the group.

The group faced major cost pressures during the year. Rising costs in markets which are under pressure has negatively impacted margins despite continued focus on cost management. The trend for wage increases above the rate of inflation is a concern. The ability to pass on these increased costs without impacting on local market offtake, which is the backbone of the business, is difficult due to the economic circumstances of our customers. Accordingly, productivity improvements are vital if the business is to be world competitive.

The world market price of sugar is one of the most volatile of all commodities and it is further distorted by subsidies, whether direct or indirect, granted to major sugar producers around the world. Discussions with governments in the countries in which Illovo operates stress that our businesses are world competitive but it is necessary for good import protection to be in place to ensure that we are not negatively impacted by the dumping of low-priced surplus sugar from other parts of the world. Positive steps have recently been implemented in South Africa and Tanzania. In addition, in Mozambique the government is anticipated to introduce a new level of tariff following an investigation by an independent expert.

Generally relations with the various governments in the countries in which we operate remain positive and constructive.

As an African business headquartered in KwaZulu-Natal, we strongly condemn the violent attacks which were launched against foreign people living in this country, some of whom are nationals of the countries in which we have operations. These xenophobic attacks are of great concern and unacceptable behaviour perpetrated by a handful of our own citizens.

Strategy implementation

Development of key markets The group is Africa’s leading sugar and downstream producer with extensive agricultural and manufacturing operations in six African countries with strong domestic, regional and preferential markets. The past year has seen a major decline in prices in the EU as producers prepare themselves for reform of the EU Sugar Regime from 2017. The world sugar price is currently low as a result of a fourth year of a global sugar surplus and the volatility of currencies particularly the Brazilian Real. However, African annual sugar growth continues to increase with demand expected to grow by six million tons by 2020. Consequently, the group will be focusing on our domestic markets, both consumer and industrial, and on the opportunities available in the growing African markets.
Diversification through downstream expansion In addition, the group will pursue downstream investments such as the recently completed distillery in Tanzania, to enhance and diversify future revenue streams. Energy efficiency projects and power co-generation will also be areas of cost reduction and revenue growth.
Preparation for long-term expansion of sugar production The group continues to evaluate opportunities for further footprint expansion in Africa but careful assessment of the risk will remain crucial to any new opportunity being processed.
Cost reduction The existing business will focus on capacity utilisation and productivity improvements whilst assessing the opportunities which are available to grow the existing base operations, particularly marginal cane and factory expansions.


Our people are key to achieving our Strategic Intent. Attracting and developing our people is central to our business strategy. Illovo employs approximately 33 000 people, 13 000 on a permanent basis and another 20 000 as seasonal employees. Regrettably we have not made the progress we aspire to in transforming our senior management teams both in South Africa and in our other areas of operation, but this is being addressed by training, development and mentorship so as to meet our goals through targeted succession plans.

Safety remains a significant item on every board agenda and it is most pleasing to report that the group safety record in respect of both disabling injury and total injury frequency has shown a major improvement over the last couple of years with the past year showing a 10% improvement. I regret that we had two fatalities in the past year and the objective is to eliminate any such occurrences by focusing on behavioural performance and entrenching health and safety standards and thereby nurture a safe operating culture across the group.

Access to health-care is provided to all our employees and their dependants either through a network of group-run primary health-care clinics and four hospitals or through the provision of medical insurance schemes. We continue to take a proactive stance against life-threatening epidemics such as HIV and AIDS, malaria and tuberculosis. These diseases are managed largely on a preventative and integrated basis. Strategies for controlling HIV and AIDS include preventative programmes together with an established in-house wellness programme.

Governance/social investment

Illovo’s directors and employees strive to ensure the company is managed with honesty, integrity and in accordance with highest legal and ethical standards. Its governance structures are in line with King III and the Companies Act. The approach is to stay abreast with local and international best practice and ensure that local requirements are met in the countries in which we operate.

In South Africa, during the year under review, the company was rated as a Level 3 contributor in terms of the B-BBEE Codes of Good Practice, and has subsequently moved to Level 2.

The company qualified for inclusion in the JSE’s SRI index for the eighth successive year and was named among the nine companies which met the “best performer threshold”.

The group has an extensive social investment role across the large areas in which we operate. This is particularly relevant as most of our operations are situated in rural areas. The group’s businesses form the economic and social backbone of local communities in the areas in which we operate providing infrastructure, health-care facilities, schools and many other community benefits amounting to R315 million in the 2014/15 season. As a buyer of goods and services we also support local businesses. Overall Illovo has a material impact on job creation and poverty alleviation in the regions in which it operates.


Development of key markets The year ahead will be a tough one for the group with production anticipated to be below that of the current year due to the drought during the growing season in South Africa. In addition the export markets continue to be very challenging and the efforts to change the market mix will be important to reduce the impact of the lower world and EU prices. Volatility of local currencies will continue to impact on revenue realisations for both sugar and downstream exports and the conversion of profits. As a result of these challenging production and marketing conditions, it is expected that HEPS for the year ending 31 March 2016 will be between 25% and 45% below those for the prior financial year.


I will be retiring from the board at the annual general meeting and would like to thank the shareholders, business partners, my fellow directors and the employees of Illovo for their support over the many years of my involvement at Illovo. It has been a real privilege to serve as both Chairman and Managing Director of a group which lives by its core values, has a strong commitment to integrity, is focused on the pursuit of excellence in its activities and is cognisant of the communities and the environment in which it operates.

I would like to express my appreciation to my fellow directors over the long period I have served on the board for their commitment, guidance, valuable input and wise counsel – it has been a wonderful experience and a privilege to work with them. I wish the group continued success in meeting its vision and Strategic Intent and will follow its achievements with great interest.

Phinda Madi is due to retire from office at the group’s forthcoming annual general meeting and will not be standing for re-election. He has been a valued independent board member and I thank him for his contribution to Illovo over his 12 years on the board and wish him well in his future endeavours.

My thanks to Gavin Dalgleish and the executive management team for their hard work and leadership in what has been a challenging year.

On behalf of the board I wish to extend my appreciation and thanks to the employees of Illovo across the operations for their effort and commitment during the past year.

Don MacLeod


Date: Wed, 15 July

Time: 14:00

Venue: Illovo Sugar Park

Notice of AGM


Contact Us

Illovo Sugar Park, 1 Montgomery Drive, Mount Edgecombe, KwaZulu-Natal

Tel: +27 31 508 4300