Illovo's plans for Europe trade

Illovo's owner Associated British Foods should be more than happy with the 43 percent rise in profits for the financial year, with the group looking to make the most of the Least Developed Country status of countries like Zambia. CEO Don Macleod explains.

Bruce Whitfield:
Well good results today, great results in fact, from sugar producer Illovo nowadays controlled by Associated British Foods which own a 51 percent stake since taking control last year.

Profits for the year to the end of March were up 43 percent, operating profit was over R1-billion, and Don Macleod is the chief executive of Illovo, he is on the line to us from Durban this evening and ABF have actually been the controlling shareholder for what, nearly a year now Don?

Don Macleod:
Good evening Bruce, they have been the controlling shareholder since the fourth of September so it is a bit like eight months.

Bruce Whitfield:
Eight months or so, have there been substantial changes? I mean have they added considerably in terms of board strategy, the contribution from that respect?

Don Macleod:
I think that what I would say is that they have attended all our board meetings and that they have bought into this strategy that we had before as a company and that was one of the reasons why they purchased us.

So it has been very nice that they have felt that the strategies that we had was one that they could buy into and push forward with in terms of where we are going as a company in the long term.

Bruce Whitfield:
And I guess as an African sugar producer a very different business to what they had invested in the past and as a result their seal of approval on your business plan then I guess is very positive from that respect.

Don Macleod:
Yes it is because we have been very clear that our business is A, sugar, and B, that currently we operate within Africa although we look to supply to over a hundred countries around the world. So it is good that we have that focus as a business.

Bruce Whitfield:
You had a great year, it wasn't all smooth sailing though, you had record production in Malawi but lower production in South Africa, Tanzania, the weather was against you, but sugar prices, although very strong last year have been quite volatile and perhaps tailing off a little bit recently.

Don Macleod:
Yes, we had our plusses and we had our minuses out there and the world sugar price was very positive to us in terms of last year.

We saw a world sugar price in February last year of almost 20 cents which was a high for 25 years, so that was great for us, and unfortunately it has dropped and it is now just over nine cents a pound, that is US cents a pound, and that certainly will impact on part of our results going forward but one of the strengths we do have as a group is that 74 percent of our sugar production and 80 percent by value is sold into domestic or premium priced export markets of the United States and the European Union.

Bruce Whitfield:
But certainly the way of the future for the sugar market is getting Least Developed Country status in as many of the markets as you can and I am assuming Malawi and now Zambia, which is your second biggest region, both have that Least Developed Country status.

Don Macleod:
Yes they do and one of the things that we have been doing as a company is making sure that when the Least Developed Countries have the opportunity to supply sugar into the EU duty-free, which is in 2009, that our expansion plans are well developed and we are able to supply sugar into those markets and benefit and it is not often that you can look at an expansion programme and one part of it which is the market place has an underpin.

Bruce Whitfield:
And certainly you are not going in half cocked at all, you are going in substantially in Zambia, a billion rand expansion there as well looking to double your production in Zambia and that will make it even bigger than your current output from Malawi.

Don Macleod:
Yes it will be the biggest mill that we would have in the group as a whole and it would be our biggest production other than South Africa. We are very excited about the expansion and it is going ahead pretty well at this stage.

Bruce Whitfield:
You have lowered your debt levels quite considerably, lots of private equity players suggests that South African balance sheets are not geared highly enough, you have got a gearing ratio of about 12 percent.

What is the thinking behind that? Why such low gearing? Is this not an opportunity to use that strong balance sheet and to grow the business that way?

Don Macleod:
It has been part of our strategy always to get our balance sheet strong prior to the expansions that we have in mind and that is what we have been doing and now we will be gearing up the balance sheet again.

Bruce Whitfield:
Don Macleod, nice to talk to you as always, thanks very much indeed, on the line to us from Durban, he is the chief executive of Illovo. Very strong results out today, just to recap on those, a 43 percent growth in profits, they have operating profits of over R1-billion and the big news story there is massive expansion into Zambia getting that Least Developed Country status and that is where they are going to benefit from those tax-free exports of sugar into the European Union from 2009.