Illovo Sugar Malawi net profit increases by 30% from K20.5bn to K26.6bn; Dividend declared at K14.9bln

Illovo Sugar Malawi Plc announced that the company has made a net profit of K26.6 billion in the 2022 financial year — up from K20.5 billion in 2021, which represents an increase of 30%.

This was announced on Tuesday during the company’s Investors’ Forum at Sunbird Mount Soche Hotel, where Illovo Sugar Malawi’s Managing Director, Lekani Katandula also declared K14.9 billion as dividend.

The company’s revenue increased by 14%, from 163 billion in 2021 to K187 billion in 2022 with net debt reduced by 153% from K9.9 billion to K5.3 billion while free cash flow increased from K25.7 billion to K34.9 billion — representing 36% increase.

Key challenges that Illovo Sugar Malawi faced during the period included high rates of inflation on key inputs such as fuel, electricity, and packaging and forex shortages adversely impacting supplies of key inputs such as fertilizer, chemicals, and diesel.

Katandula (left) and Finance Director Kondwani Msimuko during a press briefing after the forum

Perception of unfair reward for cane growers and sugar pricing was also one of the challenges faced as well as low growers’ cane yields and inadequate reception to more professional farm management and adverse economic impact of COVID-19 and recently, cholera.

The company responded to these challenges through efficient forms of irrigation (drip irrigation); agricultural yield recovery programme at Nchalo Sugar Estate; updated pest and disease control strategy and cost rationalisation to mitigate revenue losses — through Project Tisinthe and its successor Tiwale.

There was also enhanced quality focus to reduce bulk sugar production in favour of higher margin sugars and initiated energy projects by reducing demand and increasing generation and power supply.

Going forward, Illovo Sugar’s 2023-2027 strategy include safe production of at least 330,000 tons of sugar per year through improved agricultural yield; factory recoveries & capacity de-bottlenecking and to reduce its fixed and variable cost base by delivering on Tiwale.

It will also optimize capital spend and generate a positive ROI on its capex to sustain the right to invest through a strong balance sheet and confidence in execution as well as continuously upgrading and adopting emerging business enhancing technology.

A long-term energy strategy shall be implemented that aims at reducing the reliance on Electricity Supply Corporation of Malawi (ESCOM) to provide opportunity to generate additional revenue.

In October last year, Illovo unveiled its plans to utilise the massive irrigation project being undertaken through the Shire Valley Transformation Programme.

After his visit to the project at Kapichira in Chikwawa, President Lazarus Chakwera applauded Illovo’s involvement in this largest irrigation canal project in the southern Africa.

Chakwera was appraised of investment plans that Illovo Sugar Malawi has prepared that include using drip irrigation as opposed to the current sprinkler process that needs lots of electricity power.

Katandula appraised the President that through the use of the canal, Illovo Sugar is set to save on costs of power from ESCOM’s grid, saying the surplus power on ESCOM grid would be fully utilized for rest of the Lower Shire communities.

Chakwera was immensely impressed with the investment plans by Illovo Sugar Malawi, whose participation would also help sustain the irrigation programme for years to come.

He applauded Illovo’s investment into the irrigation programme, which he appealed to other investors to emulate in establishing mega farms.

Katandula addressing the investors

In November, as the low income earning citizenry were — and still are — facing tough and unbearable economic challenges, Illovo Sugar launched an affordable 90 grams packet of sugar at K150 as a solution for everyone to afford to buy the commodity.

A 1kg packet of sugar is being sold at recommended retail price K1,500 but the rural masses buy the same packet at over K200 to K400 more as traders add the mark-up due to high cost of transportation to and from wholesale distributors.

At the same time, most traders had being opting to buying bulky bags of sugar and pack the commodity in thin plastic bags at a price of K200 per 100g — a suspect that the measurement scales they use might be tampered with.

At the launch in Ndirande of the 90g packet, dubbed ‘Shuga Mtape’, Katandula said while the product is affordable for low income earners, it is also one way of enhancing hygiene — taking cognizance that the traders pack the sugar into the thin plastics with bare hands.

He said the continued rising cases of cholera across the country is due to unhygienic habits of not washing hands regularly, especially after visiting the toilet — thus the traders cannot be sanitary at all times as they manually pack the sugar.

He emphasized to the gathering at Nyambadwe Primary School that they took that consideration so that they shouldn’t be associated with cholera spread through thin plastic bag packing.

He quoted Mahatma Gandhi in Chichewa, saying: ‘Munthu yemwe waona vuto koma osachitapo kanthu, nayenso ndi gawo limodzi la vutolo’ (a person who detects a problem and does not act to solve it, they are part of the problem).

He emphasized that the new product will at least afford parents to provide tasty porridge for the children before they go to school every day — thereby assisting the learners to concentrate on their studies.

Present at the launch as guest of honor was Secretary for Trade, Francis Zuwayo, who applauded Illovo’s initiative — attesting that this was the way to go in order to play a part in solving the economic challenges Malawians are facing.

“Times are hard and such an initiative to afford sugar for low income earners should be commended,” he said, while also encouraging the gathering to continue observing health etiquettes to avoid contracting cholera.

Meanwhile, former Minister of Trade & Industry, Mark Katsonga Phiri — just days before he was to be fired from Cabinet by President Chakwera — made an incredulous warning at a press conference that if Illovo would not consider his plea to reduce price of sugar, the Government will opt to import the commodity from Brazil.

He went further to contradict himself by saying if the government would opt to import from Brazil, “it could kill the local sugar industry” and also took cognizance that Illovo Sugar increased sugar prizes following the 26% devaluation of the kwacha made mid last year — which affected every business entity.

The Minister told journalists that he was negotiating with Illovo Sugar Malawi, saying pricing of any commodity should be in line with economic factors.

In his response when asked by the media at Mount Soche, Katandula said the company has made several initiatives to cushion the price of sugar so that it should not be adjusted upwards further than the recommended K1,500 per kg.

He also said if the price of sugar was to be reduced, then it would be the lowest and thus attract its illegal exportation by unscrupulous traders to neighbouring countries of Mozambique, Zambia and Tanzania.

He reiterated that this was the scenario in March and April last year when the country’s stocks went dry and through its investigations, they discovered the illegal importation as cause of the commodity’s scarcity on domestic market.

This was also explained to Katsonga when he made a visit to the company’s Nchalo Estate in April when the country was experiencing short of the commodity that led to traders increasing its price against its recommended price of K900 then.

While Katsonga found the factory in full production swing and being assured that sugar supply would normalize by end of that week, Katandula also emphasized that the scarcity of the commodity was man-made, as discovered through the survey they made that strongly indicated that some unscrupulous traders were deliberately hoarding the commodity to create its scarcity in order to increase prices.

The survey that the company made — when it came to their attention of the sugar scarcity on the market — also indicated that illegal exportation to neighbouring countries where Malawi’s Illovo sugar is cheaper, also contributed.

At the press conference on Tuesday, Katandula thus reiterated that the current price is strongly protecting the domestic supply as it does not make business sense to export to the neighbouring countries where its sugar price is relatively similar.

Katsonga’s blaming of Illovo Sugar effecting price increase following the 26% devaluation of the kwacha, was deemed as incredulous when he said consumers shouldn’t be punished because of the devaluation — which was effected by the government itself in May 2022.

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