Illovo Sugar Group, the parent company of Malawi Stock Exchange (MSE)-listed Illovo Sugar (Malawi) Limited has said demand for their product on the local market is on the decline, pushing up finance costs.
In its preliminary report for the year-ended March 31 2016, the group said reduced domestic sales in Malawi as well as direct and indirect drought impacts across all six countries of operations, currency volatility and high interest rates in various jurisdictions and ongoing pressure on sugar export revenues have combined to weigh heavily on the group’s results.
Reads the report: “While the conversion of operating profit to cash remains strong, the impact of reduced sales volumes and lower demand has increased working capital requirements.
“The higher funding requirements, compounded by considerable increases in interest rates and currency volatility in Malawi and Zambia, increased financing costs by 101 million rand [about K5 billion].”
The report shows that Malawi’s contribution to operating profit dropped to 32 percent from 38 percent in 2015.
Illovo Sugar (Malawi) Limited data indicate that domestic market sales declined by 40 000 tonnes year-on-year mainly as a result of local unfavourable economic conditions and illegal entry of foreign sugar into the Malawi market.
Overall, sugar sales into the local and export markets amounted to 255 000 tonnes, a decrease of seven percent over the previous year’s 273 000 tonnes.
Illovo Sugar (Malawi) Limited has increased prices of sugar by an average of eight percent effective June 2 2016 attributed to fundamental market changes, including inflation, price of elasticity and depreciation of the kwacha against the dollar, among others.
Illovo Sugar (Malawi) Limited managing director Gavin Dalgleish in a statement said good progress has since been made in improving the sales mix, developing regional and domestic markets and structural cost reduction programmes, thereby mitigating some of the downside to the results.