Illovo Group Strategic Update Swaziland Analyst visit. 27 th September 2011

Transcription

1 Illovo Group Strategic Update Swaziland Analyst visit 27 th September 2011

2 Contents Vision, Strategic Intent and Goals Africa remains fundamentally attractive Mali development Power generation 2

3 Our Vision and Strategic Intent remain unchanged from last year Vision Strategic Intent The Vision of the Group is to be a world-class, low-cost and highly efficient organisation, operating on the African continent, adding value to its core products of fibre, sugar and molasses. We seek to enhance shareholder wealth and optimise growth, achieving a sustainable, balanced and integrated economic, social and environmental performance, whilst taking cognisance of the interests of our stakeholders. To: be the leading sugar and downstream products operation in Africa, an increasing global player and a world-class organisation be the lowest-cost producer in every country in which it operates and among the lowest-cost in the world optimise the return of every stick of cane by adding value to its core commodity products fibre, sugar and molasses. It will focus on its core business and develop material niche operations which add value be the market leader, meeting and proactively anticipating customer needs increase profits in real terms on a sustainable basis and maximise the return on capital employed through cost leadership, the use of innovation technology and the participation of its employees be a moral performance focused organisation that people are proud to work for, where they are challenged to go the extra mile, feel they can make a difference and know that good performance is recognised be welcomed in the communities in which it operates because of what it does, how well it does it and be accepted as a progressive company by all communities; aligning strategies to meet challenging circumstances in the various countries in which the group operates be cognisant of the rural locations of the group s operations and the impact that it has on job creation and poverty alleviation in such areas 3

4 Goals and Objectives Primary objective To enhance the wealth of shareholders by optimising the long-term returns and growth of the business To be a world-class organisation and amongst the most efficient and lowest-cost producers in the world To achieve sustainable, balanced and integrated economic, social and environmental performance To provide all employees with a working environment that is safe and without risk to their health Growth To expand the group s sugar and cane production To consolidate and improve profitability of downstream operations To maximise usage of bagasse and biomass to generate electricity for own operations and to supply power to national grids To seek new opportunities for sugar and downstream products Profitability To achieve a competitive rate of return on shareholders funds and increase profits on an ongoing basis in real terms. To maintain a dividend cover of at least two-times. 4

5 Goals and Objectives Asset management To manage investments in fixed assets and working capital so as to achieve the most efficient usage of funds employed, with the objective of not exceeding gearing of 40% over the long term and achieving interest cover of not less than five times Investment hurdles IRR >20% with payback <6 years Product development To be proactive in identifying the needs of customers To consistently deliver quality products and services to customers To be early adopters of new technology in order to improve returns, and, where relevant, develop new products and applications, from its core commodity products using every stick of cane Human resources To promote the ongoing development of all employees in order that they reach their maximum level of competence and are aligned to achieving the Group s primary objective To offer equal opportunity to all employees To develop capacity for growth within current and future operations Corporate governance To ensure that the company is managed in an efficient, accountable, responsible, transparent and moral manner To be socially responsible, and maintain and develop appropriate ethical, environmental and risk management standards as an integral part of the business To take cognisance of all stakeholders interests in the group s business 5

6 Contents Vision, Strategic Intent and Goals Africa remains fundamentally attractive Mali development Power generation 6

7 Developing markets will have strong sugar growth due to high income elasticity of demand and GDP growth Elasticity of demand Sugar consumption vs GDP/capita Consumption per capita (kg) Moving Average 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 GDP per capita (US$ 2000 value) Illovo total domestic market sugar demand , t m t Malawi Sugar demand , t 480k t 2030 GDP/capita growth projections , $ Malawi 429 Mozambique 763 South Africa 9,344 Swaziland 3,593 Tanzania 779 Zambia 2, Ethiopia 526 Kenya 1,362 Mali 917 Sudan 2,219 Uganda 517 Zimbabwe 1, Sources: Czarnikow, Illovo Sugar 7

8 Africa is expected to account for 12% of the world s demand growth for sugar an equivalent of ~11 mt by 2030 Czarnikow growth predictions to 2030, Average Annual Growth , % 7% - 10% 4% - 7% 3% - 4% 2% - 3% 1% - 2% 0.5% - 1% 0% -0.5% -1% - 0% Source: Czarnikow 8

9 Many African countries have sustainable high prices due to regulatory and geographical barriers Source of sustainable high margin Regulation High political priority: driven by importance of food security, jobs, farming and trading blocks Multiple instruments are used Import duties (e.g. COMESA has a 25% import duty from outside this trading block) Domestic price regulation (e.g. Ethiopia 100% government controlled) Domestic incentives (e.g. South Africa & Swaziland industries provide rebates to industrial customers) Local prices 2011/12 (raw ex-mill) DRC South Mali Kenya Uganda Rwanda/Burundi Ethiopia Zambia Geographic and infrastructure barriers Drives high import parity: low-cost producers (e.g., Brazil) need to ship, load, and freight, making import costs higher Many countries have: Challenging geography: DRC, Mali, Uganda Underdeveloped infrastructure: Kenya, Tanzania, Sudan, Ethiopia Lack of railcars / trucks Example cost of accessing DRC South: Malawi Zimbabwe South Africa Mozambique Tanzania Swaziland Brazil $370 Zimbabwe $195 Ethiopia $356 Zambia $120 Mozambique $300 NY #11 (25c/lb) Source: Illovo Sugar 9

10 Competitors: African markets concentrated with high levels of government ownership and small number of multi-country players Market share of local sugar players, % Government ownership of sugar industry, % Multi-country African sugar players share of production, % Morocco Senegal Malawi 100 Zimbabwe 100 Zambia Mali Egypt Swaziland Uganda Illovo Malawi 100% Mozambique 25% South Africa 30% Swaziland 40% Tanzania 43% Zambia 93% THS Mozambique 50% South Africa 30% Zimbabwe 100% Sudan Kenya Mozambique Tanzania Ethiopia TSB South Africa 30% Swaziland 60% Tereos Mozambique 25% Tanzania 27% South Africa Ivory Coast Market leader Number 2 Number 3 Other 10

11 Domestic & regional markets are Illovo s main focus whilst access to preferential EU and US markets attracts balance of production Domestic and regional markets Tanzania is Illovo s only deficit country. In all other countries Illovo first supplies the local market then the regional. Regional sales are driven by neighbouring deficit countries for example: Namibia, DRC, Burundi, Zimbabwe. Sugar quality and packaging sold reflect local demand and are marketed using strong local brands. Preferential markets All of Illovo s operations enjoy some degree of preferential access South Africa has a US quota whilst access to the EU is being pursued. Swaziland has EU access through its EPA membership plus some US quota. All others enjoy tariff free EU access (EBA status) and some US quota. EU is an important destination Redesigned to be a structurally deficit region requiring c.3m t of imports per annum to meet its mature domestic demand. Illovo s southern hemisphere location produces sugar at different times to other EPA and EBA countries thus harmonising the supply to EU refiners. EU demand has an increasing appetite and willingness to pay for speciality / Fairtrade sugars from Illovo s operations. Current regime expires in September 2015, lobbying underway regarding new structure. 11

12 Contents Vision, Strategic Intent and Goals Africa remains fundamentally attractive Mali development Power generation 12

13 Public Private Partnership in Mali, with sugar production starting in early 2015 Project Overview The Markala Sugar Project is a public private partnership with the Government of Mali (GoM) The project comprises the following: 200,000 tons annual sugar production, 15,000 kl ethanol, 30 MW power 14,123 hectare sugar cane estate Direct employment 7,000 and indirect employment of a further 18,000 Illovo will own a minimum of 65% of the Factory. GoM to own the Agricultural estate, Illovo to effectively have operational control The project has strong strategic drivers for Illovo Establishes a new regional development opportunity, in a large deficit region, with attractive sugar market Project finance funding sources for Illovo with further opportunities to finance future expansion in nonrecourse or limited recourse manner Low cost public sector funding for agricultural development An important model for scaled-up agricultural development and sustainable out-grower participation. Illovo, ABF and AfDB Board meetings (Nov 10) SoSuMar financial closure Power and water to first pump station Future CaneCo financial closure remaining lenders secured Factory start up to crush cane (early 2015) 13

14 Most project elements are in place, final resolution still required on public sector funding Outstanding GoM items Element Market regulation legislation Commentary Final text with GoM awaiting review Execution of contract amendments To be finalised in Q Completion of Public sector funding Pledges in place for outstanding funding GoM guarantee required for working capital finance Private sector funding Finalisation of the DFI funding for the factory Fully funded Project management Structure established Negotiations to formalise Project Management Company (PMCo) complete External stakeholders Environmental and social action National water strategy Environmental and social action plan agreed Water master plan approved by GoM 14

15 Contents Vision, Strategic Intent and Goals Africa remains fundamentally attractive Mali development Power generation 15

16 Sugar industry has a role to play in power generation through becoming self-sufficient and then exporting to the grid Current Nchalo (Malawi) energy supply scenario, % Current Ubombo energy supply scenario, % Currently import electricity for irrigation cost 143 Currently export surplus electricity to the local grid new revenue stream Total demand Co-generation Balance -43 Total demand Co-generation Balance Co-generation can be developed at sugar mills, although regulation is the key to creating an economically attractive investment Electricity from sugar mills cannot compete with cheaper alternatives such as hydro power Governments use regulatory instruments such as Power Purchase Agreements (PPA) to create a long term sustainable market enabling private sector to make appropriate investments. There is variability across African countries with regard to their commitment to such regulatory instruments Swaziland created a suitable PPA South Africa struggling to develop a suitable framework 16

17 LUSIP DEVELOPMENT, FACTORY EXPANSION & CO-GENERATION PROJECTS PRESENTATION to Investor Analysts Sep 2011

18 UBOMBO SUGAR LIMITED

19 UBOMBO SUGAR LIMITED Jointly owned Illovo Sugar: Tibiyo Taka Ngwane Agro-industrial estate 8,656 hectare under sugarcane; manage Tibiyo Farm 2,630 hectare Historical i factory crush 1.9 million tons cane 56% from private growers, with small scale growers 11% sugar production 220, tons 95,000 refined sugar Employees 1,384 permanent; 1,395 seasonal Provide municipal & social services health care, education, housing, recreation facilities

20 UBOMBO SUGAR LIMITED Global competitive advantages high yields; scale economies and efficiencies low cost producer of high quality sugars market access into EU/COMESA/SACU Key Imperatives for sustainable future secure existing grower supply chain optimise & diversify revenue streams grow through h expanded d production

21 INTEGRATED DEVELOPMENT PROJECTS INTEGRATED EXPANSION PROJECT

22 LUBOVANE DAM 155 gigaliter (Gl Gl) storage capacity 11,500 hectare irrigated crops from Usuthu River Yield allocated to small grower development

23 LUSIP DEVELOPMENT Phase One

24 LUSIP SUGARCANE DEVELOPMENT Yield from plant cane +120 ton per hectare USL structured for sustainable Small-Scale Grower scheme Hectares to be harvested: LUSIP TOTAL 927 2, ,838 3,500 3,500 4,238 5,000

25 FURTHER OPPORTUNITIES TO MAXIMISE CANE SUPPLY without compromise to LUSIP 5,000 ha 2011 USL Bar Circle Phase hectare 2012 Large Scale Growers 408 hectare 2013 USL Bar Circle Phase hectare 2014 USL Marshall Campbell 160 hectare Fusegate Project 1,164 hectare If required, ex-dsc lands 400 hectare

26 LUBOVANE DAM FUSEGATE PROJECT Economic opportunity for added storage raise spillways by m to store 33 Gl no compromise to dam yield, flood plain or crests Inter-Ministerial task-team team established by USL water basin management study undertaken install fusegates when required by Government Develop additional 2,000 hectare under sugarcane

27 DISCHARGE OF EXCEPTIONAL FLOODS The tipping of a given Fusegate is triggered by the development of uplift pressure in the base chamber

28 UBOMBO FACTORY EXPANSION Ubombo commitment to process sugarcane from LUSIP 5,000 hectares required capacity increase to 500 ton cane per hour

29 FACTORY EXPANSION & CO-GENERATION PROJECTS Front End Package completed mid 2009 Board approval in October 2009 Phase 1 commenced January to April 2010: New Decentralised Control o System on existing boilers Dawson governor and auto synchronization for existing turbo alternators Civils and structural construction of boiler, diffuser and continuous vacuum pan Biomass shredder and prep line

30 FACTORY EXPANSION & CO-GENERATION PROJECTS Phase 2 commenced mid December 2010: Removal of milling tandem; installation of new mills and gearboxes; and new bagasse handling conveyors Installation of all major electrical drives, motor control centers and associated infrastructure. New plant-wide automation ti system, control rooms and field instrumentation Installation and integration of new process equipment, including all services and piping systems Completion of new power house, boiler, and Turbo Alternator (TA)

31 FACTORY EXPANSION & CO-GENERATION PROJECTS STAFFING & SERVICES 560 occupants in expatriate contractors camp Catering, laundry & social services for 741 people contractors on site at project peak 32 different contractor teams on site

32 FACTORY EXPANSION & CO-GENERATION PROJECTS SHE Statistics to Project Completion Total man hours worked = 2,350,194 Zero Fatalities Lost Time Injury Frequency Rate = 0.42 Lost time Injuries = 5 Total Injury Frequency Rate = 3,31

33 FACTORY EXPANSION & CO-GENERATION PROJECTS Plant commissioning: Water and steam trials commenced mid-march 2011 Start-up 16 April on Line 1 and 19 April on Line 2. Plant operational & design capacities being achieved

34 FACTORY EXPANSION & CO-GENERATION PROJECTS CAPITAL COST Approved Budget = E billion Estimated Final Cost = E billion Saving = E 300 million

35 FACTORY EXPANSION & CO-GENERATION PROJECTS Achievements: Within Budget with minor delay in start-up Satisfactory SHE performance Firsts for Group chainless diffuser and Chinese TA Major equipment at rated capabilities

36 FACTORY EXPANSION & CO-GEN PROJECT January 2011 Installation of A continuous pan & boil-out vessels

37 FACTORY EXPANSION & CO-GEN. PROJECT May 2011 A continuous pan and ancillaries

38 FACTORY EXPANSION & CO-GEN. PROJECT February 2011 Piping for Evaporators & Juice Heaters

39 FACTORY EXPANSION & CO-GEN. PROJECT February 2011 New Evaporators & Juice Heaters

40 FACTORY EXPANSION & CO-GEN. PROJECT January 2011 Removal of old milling tandem & milling foundations

41 FACTORY EXPANSION & CO-GEN. PROJECT Early April 2011 Mechanical handover of new mill house

42 FACTORY EXPANSION & CO-GEN. PROJECT April 2010 Preparing foundations for Bosch 300 ton cane/hour diffuser

43 FACTORY EXPANSION & CO-GEN. PROJECT February 2011 Bosch 300 ton cane/hour diffuser

44 FACTORY EXPANSION & CO-GEN. PROJECT November 2010 Construction of boiler & power houses

45 FACTORY EXPANSION & CO-GEN. PROJECT Early April 2011 New 105 ton steam/hour boiler & power house

46 FACTORY EXPANSION & CO-GEN. PROJECT January megawatt (Mw) controlled extraction & condensing TA set

47 FACTORY EXPANSION & CO-GEN. PROJECT May 2011 Electricity exports

48 UBOMBO CO-GENERATION STORY Objectives: self-sufficient in estate electricity demand hedge cost/reliability of irrigation power for 48 weeks export surplus power generated into national grid Strategy: integrate co-generation into factory expansion project improve factory thermal efficiencies to create surplus fuel source supplementary fuel for 12 week off-crop generation Key milestones: design low cost system for cane trash collection & delivery negotiate power purchase agreement with Swaziland Electricity Company (SEC) register project to earn carbon credits from fuel switch & renewable co-generation 32

49 UBOMBO POWER GENERATION INTEGRATED INTO SUGAR MILLING ASSETS Boiler capacity: 359 ton steam/hour Turbo Alternator: 40 Mw Ubombo to generate 210 gigawatt-hours (GWh GWh) 100 GWh factory demand 110 GWh export outside factory fence 5-10% of Swaziland demand

50 POWER PURCHASE AGREEMENT PPA with SEC signed for 15 years ramp up from 20 to 55 GWh by 2015 flat rate tariff escalated at production cost Upfront exclusive right payment amortised over 15 years USL transforms from 11kilovolt (KV) to 66KV provision i to exit after 8 years right of access to SEC transmission lines for wheeling Export & self-sufficiency from 26 May GWh export to end-august Surplus generating capacity 6-8 megawatts

51 RENEWABLE ENERGY FUELS Bagasse 730,000 tons at full capacity 10% supplementary fuel from cane trash Biomass harvest optimisation green cane harvest (21ton/hectare) from 3,000 hectares by chopper Swaziland commitment to Stockholm Convention pneumatic separation of trash from billets at biomass yard offset cane billet losses in-field minimise soil compaction critical to future cane yields Carbon neutral renewable energy fuel contribute to Swaziland s emissions reduction

52 CARBON CREDITS CDM emissions reduction 120,000 tco 2 fuel switch 31,400 tcoal co-generation using renewable fuels 100 GWh Complexity of ACM0006 methodology general revision requires requests for deviation from UNFCCC baseline for demand side energy efficiencies under expansion definition of historical data no global stakeholder objections to Project Definition Document grid emission factor for Swaziland approved Designated Operating Entity (DOE) validation site visit when Request for Deviation (RfD) approved register from late-2011

53 AERIAL VIEW OF FACTORY & CO-GENERATION PLANT THANK YOU 37