Illovo Sugar Malawi defends its socio-economic development investment after shareholders bemoan it contributes towards low dividend payout

* From the results, the shareholders are expected to receive K5 per share, which is down from K29 per share that was given out in same period of FY2023

* Which was not warmly welcomed by the investors as they deemed Illovo was spending more than they benefit from dividends

* However, Illovo management emphasised that it could not afford to see people suffering during hard economic times when its business was to thrive

By Duncan Mlanjira

From the financial performance of the six months of the financial year (FY) ended August 31, 2024, Illovo Sugar Malawi Plc posted a net profit of K23 billion, which is K34 billion less from K57 billion that was realised in same period of 2023.

This was presented today, February 14 during Illovo’s Investors Day held at Sunbird Mount Soche in Blantyre — the company’s forum where it engages with its shareholders on financial results and business updates.

Interim Finance Director, Joachim Vazi presented that the company’s revenue was at K314 billion, which is up by K42 billion from K272 billion in same period of FY2023, while operating profit went down by K23 billion from K82 billion in 2023 to K59 billion this period ended August 2024.

The results include net cash holdings at K42 billion from K69 billion and foreign payables at K105 billion from K49 billion — while capital spending went up from K25.734 billion in 2023 to double at K51.554 in 2024, most of which was investment in cane root and additions in infrastructure replacement and expansion.

From the results, the shareholders are expected to receive K5 per share, which is down from K29 per share that was given out in same period of FY2023 — which was not warmly welcomed by the investors as they deemed Illovo was spending more than they benefit from dividends.

On top of that Illovo also presented that it spent over K2.13 billion as its socio-economic development investment — the corporate shared vision (CSV) under its motto; ‘Creating a Thriving Community’, which is its contribution towards projects of national in nature such as health, education and other interventions.

It also included increasing prices of cane it is provided by company’s Nchalo and Dwangwa estates’ surrounding smallholder farmers — to over K119,203 per tonne in March 2024 to K80,000 in same period of 2023; K35,000 in 2022 and K33,000 in 2021.

Illovo Sugar attributed its decline in net profit to changes in the corporate tax regime, which now applies a 10% tax on businesses earning profits exceeding K10 billion.

During interaction stage of the forum, shareholder Solomon Kapachika expressed concern that Illovo was spending so much on the CSV and other expenses while the investors earn little as dividends from the net profit that is being realised.

Kapachika alluded that the “handouts” being provided for under CSV “are making people lazy” as the beneficiaries anticipate to be provided with relief food in times of hardship while the shareholders get to receive little dividends.

Another shareholder also expressed concerns on the high capital investment, saying it was contributing towards realising low net profit but interim Managing Director, Kondwani Msimuko explained that as a neighbour to the company’s sorrounding communities, they act like a “mini government” since they strive because of the community members’ participation in their business operations.

He gave an example of theft of its cane from the fields, which was contributing towards its loss in business and as a control measure, the CSV, under the motto; Creating a Thriving Community, was the way to go for the communities to have a sense of ownership of the company’s business operations.

He stressed that the company could not afford to see people suffering during hard economic times when its business was to thrive, which could lead to more vandalism of its assets and to create a sense of community ownership, the CSV needs to be encouraged and enhanced.

At the same time, as presented by the company’s human resources director, Khumbo Ntambo Banda, the CSV goes beyond assisting the surrounding communities but also in the contribution towards national human development capital through education.

The shareholders were appraised that Illovo partnered with Malawi University of Science & Technology (MUST) through its Endowment Fund, to assist towards girls attaining excellence in science, technology, engineering and mathematics (STEM) subjects.

Ntambo Banda emphasised that they are committed to work with the government in human development, especially girls’ STEM initiative taking cognizant that, Illovo is the second highest employer after government — currently at a total of 10,176, of which 84% are men and 16% women.

She said the company is working towards empowering its female employees through various trainings as well as the Illovo Women in Leadership (IWIL) forums — whose activities are aimed at enhancing women in the workplace.

Msimuko added with emphasis that all the company’s business activities could have been well achieved to the extent of providing sound dividend payouts to shareholders — but the challenges that the country’s economy has experienced in recent years through various climate shocks, has played a part.

He highlighted that as an agricultural industry, cyclones Ana, Gombe, Freddy and other climate shocks, including the country’s economic meltdown, the company has been greatly affected just like every other industry.

But going forward, the company is investing over US$10 million towards the Shire Valley Transformation Programme’s mega irrigation project, to tap water from its canal through gravity fed from the highest point as opposed to the high cost of electricity of pumping water from lowest point.

This will reduce the cost of power of pumping water, whose bill with ESCOM goes from K800 million up to K1 billion, Msimuko said, adding that they are also working towards investing in their own power generation system through the factories’ boilers.

That’s when he also explained to the concern of capitalisation, emphasising that most of the boilers and mills were commissioned in the 1960s and need to be replaced with new ones with latest technology that would include generating its own power for operations.

But such investment in new equipment, said Msimuko, cannot be procured in the shortest period of time but gradual — thus the investment towards tapping water from Shire Valley Transformation Programme is a game changer in as far as cutting down on operation costs.

Also expressed as a concern by the shareholders was scarcity of sugar that has led to some retailers to increase the recommended prices but the Illovo management said this was beyond their control while assuring that they have enough stock in reserve in the off-production period.

The management alluded that from their survey, some wholesalers are hoarding sugar in their warehouses in anticipation that the supply from Illovo will dry up in the off-production period, which is between December and April.

Msimuko said they put on market the recommended prices of sugar — still at K1,600 per 1kg packet, but Illovo cannot control what the end user might sell at.

To make the sugar more affordable, the company also introduced small packages of 90g; 200g and 500g to suit the pockets of every consumer.