AB Sugar New Frontiers, But Where Next?

Transcription

1 AB Sugar New Frontiers, But Where Next? Presentation to the Sentry Conference, February 5 th, 2014 Mark Carr, Group Chief Executive, AB Sugar

2 AB Sugar New Frontiers, But Where Next? Content From British Sugar to AB Sugar the Journey The evolution of British Sugar 2006 Sugar Regime Reforms and their impact British Sugar response to 2006 reforms AB Sugar today Growth in Africa/China; Re grouping in the EU The Context for Further Change The drivers to change in the Global sugar landscape Implications of 2017 EU Sugar regime changes Where next? The World s Leading Sugar Business and the future Page 2The world s leading sugar business

3 British Sugar history in brief British beet sugar industry developed in the 1920 s In 1936 UK Govt. compulsorily l merged 18 separate sugar factories into the British Sugar Corporation (BSC) as a public company with the Government holding a 36% shareholding Renamed British Sugar in 1982, it was taken over by S&W Beresford in the same year First two mainland European factories bought in Poland in 1989 Beresford sold British Sugar to ABF in 1991 British Sugar invested in China in 1995 Page 3The world s leading sugar business

4 Profile of British Sugar in 2004 Essentially a British company with overseas interests Factory numbers 6 in UK, 4 in Poland and 4 in China 2003/04 Sugar Production (mt) ~2 mt production capacity 67% of total production in the UK; 78% EU Market leader in UK, No.4/5 in China and No.3/4 in Poland Lowest cost processor in EU following sustained investment programme, factory restructuring and technical innovation UK Beet Poland Beet China Cane 1.37 Page 4The world s leading sugar business

5 The 2006 EU Sugar Regime reforms Fully regulated sugar support system from within a controlled market CAP reforms started in 1992 but not in sugar until 2006 Sugar reform phased in over 3 years 2006/7 to 2008/9 Main features of reform; support prices cut by 36%; intervention buying abolished production quotas cut by 30% (~5mt); 5mt);open ended ended preferential import access from Least Developed Countries (LDCs) industry funded restructuring to buy out capacity (and quotas) from the less efficient EU countries out of quota exports more than halved to World Trade Organisation (WTO) limit Page 5The world s leading sugar business

6 Effects of the 2006 reforms EU sugar balance moved from surplus to deficit Restricted exports and greater imports led to greater intra EU competition Market prices fell during and post transition /t EU Ref. and Market Price for White Sugar Prices and NY No.5 $/t Average Selling Price Reference Price Sugar No. 5 (Whites) Five countries stopped producing sugar entirely; a further 6 countries lost over 40% of their quota Beet sugar production concentrated on best suited areas Factories decline dramatically ; 22,000 jobs lost Now only 150,000 beet growers across the EU Source: EU Sugar Mgmt Committee Price Reporting Source : CEFS working group Nov 2013 Page 6The world s leading sugar business

7 British Sugar Response to EU Sugar Reform Anticipate EU reform changes Continue to work with growers to improve crop productivity and sustainability Increase operational efficiency through continued investment and innovation Develop integrated international strategy less dependant on EU more able to withstand EU changes providing synergies with prior operations bringing new management capability reduce positions of low market impact access preferential raw sugar supplies Growth formation of AB Sugar acquisition of a majority shareholding in Africa s biggest sugar producer Illovo in 2006/7 double up in China; pioneers into North China beet sugar sell Polish operation; Consolidate in W. Europe through acquisition of Azucarera Ebro Vivergo Fuels investment to expand bioethanol capability Raise organisational capability working to align to the internal best practice Page 7The world s leading sugar business

8 AB Sugar today 31 sites with over 5mt per yr of sugar capacity, 600ml ethanol & ~2,000GWh of power generation UK 6plants (incl. Vivergo) Iberia 5 plants China (N) 4 plants China (S) 5 plants Illovo 11 plants Page 8The world s leading sugar business

9 The UK Beet Sugar Industry today One of the most efficient sugar industries in Europe Av. beet yields up 60% to 11 tpha sugar Makes aneconomic contribution of 1 billion/year and supports 13,000 jobs British Sugar has invested over 200 million since 2006 in: crop development Relative Yield Increase energy efficiency innovative processing Energy/t sugar down 25% since 1990 co product extensions (bioethanol/betaine/co 2 tomatoes expansion) Environmental and sustainability standards set out in industry sustainability report zero waste culture Our aim is to be fully competitive with the best global cane industries by 2020 Energy consumption GJ%WE Page 9The world s leading sugar business

10 The Gold standard Wissington Integrated bio refinery Page 10The world s leading sugar business

11 The UK s first bioethanol plant

12 to one of the biggest and most efficient domestic producers of tomatoes 18.2 ha of glass Low grade heat & CO 2 driving efficiency 140m tomatoes produced annually

13 AB Sugar today in China Cane first jv 1995; partnering with regional Govt. 40,000 growers currently five cane mills producing circa 600kt per year new greenfield factory commenced operations in 2009 Beet initial jv in %; subsequent full ownership in 2010 Heilongjiang/Hebei Provinces & Inner Mongolia initially 11 factories; now 4 capacity 300kt per year 34,000 growers; average area just over 1 ha Ambition to make beet sugar production as cost efficient as cane in the South Page 13The world s leading sugar business

14 AB Sugar today in China Zhangbei Factory Page 14The world s leading sugar business

15 A huge and growing market but operating in China is never straight forward Sugar operates in a managed market environment Agricultural productivity now moving forward quickly, although beet/cane costs are high; Govt. trying to mobilise industrial farming without unrest in rural communities AND Resourcing activities in remote North East China is difficult Cultural differences drive different managerial focus; growth not always profit Operationally different perspectives compared with the West not least in Health & Safety management Page 15The world s leading sugar business

16 AB Sugar today in Africa 51% shareholding in Africa s biggest sugar producer, Illovo Sugar Africa s largest sugar producer 1.9mt sugar, 6.5mt of own cane in 2012/13 established positions ii in low cost cane sugar producing countries increasing sugar exports around the World 11 sugar and downstream plants operating in six countries: South Africa LDC countries: Malawi, Zambia, Tanzania, Mozambique ACP countries: ti Swaziland Electricity generating capacity, fuelled by renewable resources; Co product extensions into ethanol, furfural, etc. Social and development programmes in the community; education, water, health, housing Page 16The world s leading sugar business

17 Some headlines from our African operations beyond sugar.. Focus on renewables/ Co product extensions Bagasse (fibrous residue left after sugar extraction) used as boiler fuel at all Illovo s sugar factories Invested in cane trash handling to enable use of 33,000 tonnes of additional biomass feedstock in Swaziland and Malawi 89% of Illovo s energy requirements is now produced from renewable sources Produces a range of downstream co products including furfural, ethanol and lactulose. Social Investment Illovo is a long term partner in the communities in which it operates with a well developed social investment programme e.g. access to health care to all employees and their dependents through network of 24 primary health care clinics and 4 hospitals 27 schools in 5 countries benefit from direct support

18 AB Sugar, Where next? the global context Sugar demand continues to grow supported by population and GDP/capita improvements,,particularly in the Developing World 180 Further opportunities exist for sugar as an 160 input raw material into fuel/chemical 140 applications Forecast sugar demand growth million mt (raw equiv.) BUT m mtrv c per lb Short term over supply & low prices will 30 Stock Change No.11 Spot Price 34 deter investment for many Trade regimes are changing all around us 26 not just in the EU % of the traded market supplied by Brazil; 0 18 what happens in Brazil therefore bears heavily on world sugar prices 10 Relative cost inflation between producing countries should improve the long term prospectsfor EUproducers 01/02 03/04 05/06 07/08 09/10 11/12 13/14 Source : Czarnikow Group Ltd Jan 2014 Page 18The world s leading sugar business

19 .. beet sugar has already moved into a position of being globally competitive 2012/ / Australia Sweden Belgium Poland France Germany Guatemala El Salvador Egypt Thailand United Kingdom Egypt El Salvador South Africa Sudan Kenya Bolivia Australia Chile China Guangxi Zimbabwe Swaziland Malawi Zambia Colombia Nicaragua Guatemala Brazil (N.E.) Ethiopia Brazil (C.S.) 0 Zimbabwe USA Swaziland Netherlands Brazil (C.S.) Malawi Nicaragua United Kingdom Chile Ethiopia Cane Beet Source: LMC Production Costs, Q3, 2013 Top 20 lowest cost beet & cane producers, 2004/05 vs. 2012/13, US$/t (white sugar equivalent) Page 19 The world s leading sugar business

20 AB Sugar, Where next? EU CAP/Sugar CMO reform 2017 CHANGES Full deregulation from 1/10/17 Quotas and minimum beet prices abolished Private storage retained (but has never been used for sugar) Assumed freedom to export EU import preferences extended but external protection maintained IMPLICATIONS Freedom to export and therefore volume growth Closer linkage to world sugar prices greater price volatility Supply chain cost competitiveness from a global perspective now crucial Further consolidation in the EU?? Global trade flows will change IN SHORT, we need to start preparing now for Post 2017 Page 20The world s leading sugar business

21 So, what does this mean for the UK? AB Sugar has evolved into one of the World s leading sugar businesses Our UK industry is well placed to exploit these opportunities provided we focus on maintaining our competitive edge as we are already one of the most competitive in the EU We need to: increase collaboration and understanding between British Sugar and its growers ensure our beet prices remain competitive continue driving crop productivity improvements further improve factory efficiency invest in plant efficiency, innovation and co product developments raise the capability of our teams to deliver ever improving performance Despite our overseas developments there should be no doubt that we remain committed to our UK operations Page 21The world s leading sugar business

22 AB Sugar New Frontiers, But Where Next? In summary We have transformed AB Sugar over the past 10 years The environment ahead will be challenging We believe the UK sugar industry is well placed to respond We are committed to working with you to make the future as successful as the past for us all Page 22The world s leading sugar business

23 Thank you