Operations director’s review

John Hulley

Safety, health, environment, risk and quality (SHERQ)

Our strategy of recording and measuring health and safety lead indicators and focusing on creating sustainable change in behavioural safety among each and every employee continued to produce a steady improvement in health and safety performance during the 2014/15 season. It is pleasing to report that the 12-month rolling Disabling Injury Frequency Rate (DIFR) and Total Injury Frequency Rate (TIFR) results for the 12 month period to 31 March 2015 of 0.10 and 1.75 respectively, reflected a 10% improvement on the comparative performances achieved by our operations in 2013/14. Highlighted among this accomplishment, Malawi’s Nchalo agricultural operation built up a commendable 13.6 million man-hours without a lost time accident.

The reduction in lost time injuries and DIFR over a five year period is reflected in the following graph:

DIFR and disabling injuries 10/11 – 14/15
DIFR and disabling injuries 10/11 – 14/15
The number of individual operations achieving a lost time injury frequency rate of zero also improved to 13.
Zero DIFR achievements (%)
Zero DIFR achievements

A safety scorecard system which measures health and safety leading indicator performance was also implemented across the group during the year and a target score of 85% was set for our operations in the first year of implementation. The following graph demonstrates the performance against target by the individual operations:

Safety Scorecard Scores – Combined (2010/11 to 2014/15)

FSSC 22000 accreditation was achieved at 11 of our sites during the year and Coca Cola “full authorisation’’ status was awarded to eight of our sites.

Cost reduction The implementation of our own internal integrated risk management system, “Project Totus”, commenced with a trial audit at our Sezela milling and downstream complex at the end of 2014 and will now be implemented across all Illovo operations during 2015. The Totus system encompasses all aspects of health, safety, environmental, food safety, product quality, sustainability and enterprise risk management in a single integrated site audit. This system, when fully implemented, will reduce considerably the audit fatigue experienced by our operations and duplication resulting from the previous audit regime which required a multitude of individual audits.

Agricultural production:

The 2014/15 season was characterised by extremely dry weather conditions in the South African coastal and midlands cane growing areas and by severe frost damage occurring in the KwaZulu-Natal midlands. These conditions resulted in a considerable reduction in cane yields from our South African operations resulting in an 18% reduction in cane throughput compared to the previous season.

However, underscoring the value of the geographic spread of cane growing and milling assets, operations in Zambia, Mozambique, Tanzania and Dwangwa in Malawi enjoyed good cane growing conditions. Record crops were produced by our operations in Zambia and Mozambique, Dwangwa’s outgrowers in Malawi, and our own agricultural operations in Tanzania.

Cane harvested across our own estates in 2014/15, which are predominantly outside of South Africa, amounted to 6.265 million tons on 64 213 hectares of land, compared to 6.138 million tons on 63 471 hectares in the previous season. The group’s total milling throughput was supported by our outgrowers who supplied 8.792 million tons of cane compared to 9.392 million tons harvested in 2013/14. The year-on-year reduction was due to the adverse weather conditions in South Africa, having been only partially offset by improved performances from outgrowers at our other operations.

Outgrower area under cane harvested this season amounted to 113 521 hectares against 111 899 hectares harvested in the previous year. The increase in area occurred largely in Swaziland where an additional 1 200 hectares were developed and harvested as part of the phased completion of the Lower Usuthu Smallholder Irrigation Project.

Total group cane production and area harvested this year were 15.057 million tons and 177 734 hectares respectively, against 15.530 million tons and 175 370 hectares during the previous 2013/14 season.

A SUSFARMS (Sustainable Sugar Cane Farm Management system) working group, consisting of multi-stakeholders, focused on collaboratively introducing sustainable farming practices among South African midlands outgrowers and our own agricultural operations, continues to make good progress with the implementation of sustainable systems and farming practices. Their coordinated efforts resulted in all Noodsberg’s growers as well as a majority of the growers supplying cane to our Eston mill, completing and submitting a SUSFARMS tracker sustainability self-assessment. This process will be implemented at other agricultural estates in the group.

A number of drip irrigation trial blocks totalling about 150 hectares were installed at the Ubombo estate in Swaziland as part of the fifth phase of our centre pivot irrigation infrastructure upgrade. This project has the objectives of improving irrigation efficiency and reducing water consumption and irrigation electricity demand per hectare, as well as improving agricultural productivity. Early indications of meeting all of the abovementioned objectives are very positive.

Cost reduction The FREDD (automated fleet scheduling and cane stock management system) and 1 Plant (vehicle monitoring) systems implemented at Malawi’s Nchalo operation resulted in improved monitoring and control of inbound cane supply logistics. This has brought about a reduction of the total cane supply fleet, reducing operating costs and minimising the short-term need to replace ageing units in the cane haulage and cane loader fleets. The FREDD system is in the process of being implemented at Swaziland’s Ubombo operation and an opportunity analysis is being performed at Zambia’s Nakambala site.

Manufacturing performance:

Sugar production:

Group sugar production in 2014/15 amounted to 1.760 million tons compared to 1.830 million tons in the previous season. Despite the considerable drop in cane yield and in quality caused by drought and frost in South Africa, there was an overall increase of 126 000 tons of cane compared to that produced in the 2013/14 season.

Supported by a record cane crop, our Nakambala factory in Zambia produced 424 000 tons of sugar, which was an all-time African production record achieved by a single cane sugar factory. A number of other cane and sugar production records were also realised across the group, helping to offset the losses incurred in South Africa.

Nchalo factory’s performance in Malawi was disappointing and significant improvements are being implemented in the current off-crop period. The performance of the two factories at Kilombero in Tanzania was consolidated following substantial capital work undertaken during 2013 to integrate the factory energy supplies with the new potable alcohol distillery erected on site.

The group’s focus on optimising equipment reliability and consequently capacity utilisation, resulted in improved efficiency performances at nine out of the 11 milling sites with the magnitude of the improvements ranging from 11% to 40% better than average efficiency performances achieved in 2013/14.

Sezela is the subject of an energy-efficiency project as part of the group’s continuing focus on ensuring optimal performance of its operations.

Downstream production and product diversification:

Diversification through downstream expansion The downstream operations in our South African operation continued to make a significant contribution to the business. Both alcohol distilleries performed well for the year, producing a new potable alcohol production record of 58 033 kl at the Merebank and Glendale sites. Lactulose production was slightly less than the previous year’s output while furfural production of marginally under 17 000 tons at Sezela was less than the previous year as a result of the reduced cane crop and consequently feed stock in the form of bagasse from cane milling.

The new potable alcohol distillery at Kilombero in Tanzania, supplied and constructed by Praj Industries, performed extremely well in its second year of operation with stable renewable energy sources from bagasse being supplied from the Ruembe sugar factory. This resulted in the achievement of weekly production performances of 19% above design capacity. The quality of the Extra Neutral Potable Alcohol (ENA) comfortably met customers’ specifications in spite of the better-than-design production rates, for the entire season.

The supply of power into the national grid through our co-generation activities was successfully commenced on a relatively small scale at both the Eston factory in South Africa and Maragra factory in Mozambique, using renewable energy supplied from the bagasse produced during manufacturing operations.

Using bio-renewable energy sources, the co-generation operations at the Ubombo factory in Swaziland continued to perform extremely well with a new record established for electricity sales into the national grid in excess of 51 GWh for the season.

Preparation for long-term expansion of sugar production In 2015, the Illovo and Zambia Sugar boards approved capital expenditure for a more than R900 million investment at the Nakambala factory in Zambia. The project is to increase refined sugar production to meet local bottler demand and specifications for refined sugar, supply refined sugar into the region, and to upgrade brown and speciality sugar production capability to meet customer requirements and volume, both domestically and for new markets in the region. The contracting process is in an advanced stage and construction has commenced on site. Commissioning of the new facility will coincide with the sugar factory start-up programme during the second quarter of 2016.

The investment in the new distilling facility in Tanzania, co-generation plant in Swaziland and the refinery and product alignment project in Zambia are all consistent with our strategy to increase diversification of the products produced from sugar cane and consequently its revenue streams.

Continuous improvement:

Embedding the CI culture within the organisation continues to gather momentum and implementation at the operations is progressing well with the investment in people, systems and processes adding value by contributing towards improved production performance, innovation and reduced costs of production.

Cost reduction Through an external consultancy, we have facilitated the initial base-line assessments of practice maturity at every site for each of the foundation practices which support and enable sustainable CI. An action plan and site-specific targets have been set at each of the respective operations for improving their own practice maturity as they relate to the key foundation practices. On-site steering committees, which includes a site CI manager to lead the process, have also been established. Advanced (Green belt) training has been provided for selected CI champions and basic (Yellow belt) training has been provided for teams in the pilot areas where CI has been implemented.

Targets for two critical foundation practices, namely Leading and Managing Change (LMC) and Asset Care were set for the sites at a group level and it is pleasing to report that all have achieved the targets for these practices and good progress has been made in improving maturity scores for the other foundation practices.

The success of the group initiative so far has come in many forms, such as the pilot selection of Farm 6 at Nakambala whose agricultural team was taken through the relevant training and subsequently implemented typical CI tools to improve agricultural performance on this farm. The average cane yield on the farm improved by more than 10% as a result of improved agricultural practices and productivity improvements.

The final contribution from CI at the end of the financial year, inclusive of cost savings, was in excess of R350 million.

We are all immensely proud of the CI achievement to date and new targets have been set for the 2015/16 year to grow practice maturity in a sustainable manner and continue to improve business performance.

John Hulley
Operations Director


Date: Wed, 15 July

Time: 14:00

Venue: Illovo Sugar Park

Notice of AGM


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