Illovo Sugar Malawi Defends Social Development Investment Amid Shareholder Concerns Over Low Dividends

Illovo Sugar Malawi Plc has defended its social development investments after shareholders raised concerns that these expenditures contribute to lower dividend payouts.

For the six months ending August 31, 2024, the company posted a net profit of K23 billion—K34 billion less than the K57 billion recorded in the same period of 2023.

These financial results were presented on Friday, February 14, during Illovo’s Investors Day at Sunbird Mount Soche in Blantyre, where the company engaged with shareholders on financial performance and business updates.

Interim Finance Director Joachim Vazi reported that revenue for the period reached K314 billion, an increase of K42 billion from K272 billion in FY2023. However, operating profit declined from K82 billion in 2023 to K59 billion in 2024, a drop of K23 billion.

The company’s net cash holdings also fell from K69 billion to K42 billion, while foreign payables increased from K49 billion to K105 billion. Meanwhile, capital expenditure nearly doubled from K25.7 billion in 2023 to K51.6 billion in 2024, primarily due to investments in cane root development and infrastructure expansion.

Shareholders Express Concerns Over Dividends

Following these results, shareholders are set to receive a dividend of K5 per share—significantly lower than the K29 per share issued in FY2023. This announcement was met with dissatisfaction, with investors expressing concerns that Illovo was spending excessively, reducing their dividend returns.

Additionally, Illovo reported an expenditure of K2.13 billion on its Corporate Shared Vision (CSV) initiative under the motto “Creating a Thriving Community.” This investment supports national projects in health, education, and economic empowerment.

The company also raised the price it pays to smallholder farmers supplying cane to its Nchalo and Dwangwa estates—from K80,000 per tonne in 2023 to K119,203 in 2024. This is a significant increase from K35,000 in 2022 and K33,000 in 2021.

Illovo attributed its profit decline in part to recent changes in corporate tax regulations, which now impose a 10% tax on businesses earning profits exceeding K10 billion.

Debate Over Social Responsibility

During the shareholder interaction session, Solomon Kapachika questioned the company’s CSV spending, arguing that such “handouts” create dependency, while investors see reduced dividends.

Another shareholder voiced concerns over Illovo’s high capital investments, suggesting they also contribute to the lower net profits.

In response, Interim Managing Director Kondwani Msimuko defended the CSV initiative, stating that as a business embedded in local communities, Illovo acts as a “mini-government,” ensuring sustainable operations by fostering goodwill.

He cited cane theft as a business challenge, explaining that CSV initiatives help reduce such losses by promoting a sense of ownership within local communities. Without these efforts, economic hardships could lead to increased vandalism, negatively impacting the company’s bottom line.

Investing in National Development

Human Resources Director Khumbo Ntambo Banda emphasized that CSV goes beyond local community support, contributing to national human capital development.

She highlighted Illovo’s partnership with Malawi University of Science & Technology (MUST) through its Endowment Fund, which promotes excellence in STEM (science, technology, engineering, and mathematics) education for girls.

Illovo, as Malawi’s second-largest employer after the government, currently has 10,176 employees—84% men and 16% women. The company is actively working to empower female employees through training programs and the Illovo Women in Leadership (IWIL) initiative.

Navigating Economic Challenges

Msimuko acknowledged that while the company aims to provide strong dividend payouts, economic challenges, including recent cyclones (Ana, Gombe, and Freddy) and national economic instability, have affected business performance.

To mitigate these challenges, Illovo is investing over US$10 million in the Shire Valley Transformation Programme’s mega irrigation project. This initiative will utilize gravity-fed water supply, reducing the reliance on expensive electricity-powered pumps. Currently, the company’s electricity costs range between K800 million and K1 billion.

Additionally, Illovo is planning to develop an internal power generation system using factory boilers to further reduce energy costs.

Msimuko also addressed concerns regarding capital investments, explaining that much of Illovo’s equipment, including its boilers and mills, dates back to the 1960s and requires gradual replacement with modern, energy-efficient alternatives.

Addressing Sugar Supply Concerns

Shareholders also raised concerns over sugar shortages and rising retail prices. In response, Illovo management explained that some wholesalers hoard sugar, expecting supply shortages in the off-production season (December to April), leading to price increases beyond the company’s control.

Illovo reaffirmed that it maintains recommended retail prices at K1,600 per 1kg packet. To improve affordability, the company has introduced smaller packaging options (90g, 200g, and 500g) to cater to different consumer budgets.

 

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