SUGAR
AB Sugar is a leading multinational in the growing market for sugar and sugar derived products and co-products. In the EU, Azucarera is the major producer in Iberia and British Sugar is the sole processor of the UK sugar beet crop and Europe’s most efficient producer. Illovo is the largest sugar processor in Africa and is one of the world’s foremost low-cost producers.
The group has substantial businesses in China with cane sugar in the south and beet sugar in the north east. The group currently operates 34 plants in ten countries and will be capable, next year, of producing some 5 million tonnes of sugar and 600 million litres of ethanol, including potable alcohol. It will also have the capacity to generate power sufficient to meet most of its internal needs. AB Sugar aims to achieve growth through excellence in agriculture and operations, the application of new technologies for the sustainable processing of beet and cane, and the further development of co-products.
The group performed very well this year with revenue ahead by 10%, operating profit up 31% and an increase in margin to 14.8%. This was achieved with a significant increase in Chinese beet sugar production, an improvement in Iberia and the benefit of strong world prices. However, it was affected by weather-related poor harvests in South Africa, southern China and the UK.
In the UK, the profit of British Sugar reflected the impact of the crop shortfall resulting from the frost damage sustained during the severe weather last winter. The decision was taken to meet all customer requirements, despite the very tight market, using a combination of destocking, additional in-house refining and supplementary supplies secured from third parties at high cost. Despite the very poor quality of beet at the end of the campaign, operational innovation by the business enabled just under 1.0 million tonnes of sugar to be produced. To prioritise sugar availability, bioethanol production was ended prematurely after all existing supply contracts had been fulfilled. These actions came at significant additional cost, a proportion of which was recovered through a mid-year price increase.
A number of capital projects continued at the Wissington sugar factory during the year. Expansion of the glasshouse adjacent to the factory, by 70% to 18 hectares, was completed on time and on budget. This uses waste heat and CO2 from the sugar factory and production has risen to 140 million tomatoes annually. Construction, in conjunction with Air Liquide, of the CO2 liquefaction plant at the bioethanol facility is almost complete and will be commissioned in January. A planning application was submitted in mid August, as part of a feasibility study, for a renewable-energy facility which would provide 25% of the factory’s energy needs from anaerobic digestion of sugar beet pulp.
Following delays caused by contractor performance issues, construction activity recommenced at Vivergo’s bioethanol plant in Hull. The plant, which will produce up to 420 million litres of bioethanol and up to 500,000 tonnes of high-protein, high-fibre animal feed, is now scheduled to be operational in spring 2012.
In Iberia, Azucarera delivered a much improved performance. Beet campaigns in both the north and south of Spain progressed well and output totalled 410,000 tonnes of beet sugar against a quota of 378,000 tonnes. In addition, the Guadalete refinery substantially increased its output, processing 248,000 tonnes of cane sugar compared with 145,000 tonnes in the previous year. The refinery’s 15MW combined heat and power plant is now successfully exporting power to Spain’s national grid.
The high world sugar price resulted in a shortfall of raw sugar imports into the EU leaving the market in deficit. In an attempt to overcome this, the European Commission supplemented volumes with two tranches of tariff-free sugar imports and the conversion of some industrial sugar to quota sugar. Despite this, EU stocks are forecast to remain low and prices to remain firm in the coming year.
The terms of the current EU sugar regime will continue unchanged until September 2015. The European Commission has recently published its proposals for reform in 2015 which include the abolition of internal production quotas for sugar. These proposals and alternatives will be discussed over the coming months by the European Council of Ministers and the European Parliament and will be subject to consultation with relevant stakeholders. The tariffs for sugar imports into the EU are not affected by these proposals.
At Illovo, profit in the second half was ahead of last year but the result for the year as a whole fell short of the previous year affected by lower volumes, especially in South Africa, and by the strength of the rand. Local and regional prices rose in response to world market pressures and export prices to the EU improved. Production in our financial year totalled 1.6 million tonnes, down from 1.8 million tonnes last year, driven by the drought-affected South African crop. In Zambia, the new season is progressing well with the expanded factory performing at capacity. In Swaziland, the major factory expansion and power co-generation project at Ubombo was commissioned in April 2011. Over the longer term this will allow the factory to produce an additional 100,000 tonnes of sugar each year. The plant also generates enough electricity from renewable sources to cover all of the mill’s power needs, with any surplus being commercially exported into the Swaziland national grid. In South Africa, the expansion of the Noodsberg refinery was also completed, increasing capacity by 20% to 350,000 tonnes. In Tanzania, irrigation expansion and drainage improvement schemes aimed at increasing cane yields continued.
Revenue and profit in our Chinese sugar businesses built on last year’s improvements and were substantially ahead reflecting both higher prices and volumes. Beet sugar production doubled to 210,000 tonnes with the benefit of the ongoing and intensive work with growers to increase mechanisation, fertiliser and chemical use, and improve irrigation and harvesting practices. In the south, sugar production of 415,000 tonnes was held back by unfavourable weather conditions which reduced the sucrose levels in the cane. However, the Chinese sugar price was firm during the year, rising in line with the increases in the world market price during the latter part of 2010, and then remaining relatively steady. Relocation of the Zhangbei beet sugar factory, from its original site which was redesignated by local government for alternative use, has commenced and is making good progress. The relocation is due to be completed for the 2012/13 campaign.