Operations Review
Sugar
(Milling, Merchandising, Refining & Consumer Products)
Wilmar is a leading sugar operator with operations covering sugar production from cane in Australia, India, Myanmar and from beet in Morocco. We are a leading sugar refiner in Australia, New Zealand, Indonesia, India and Morocco as well as a distributor of leading brands such as CSR, Chelsea, Al Kasbah and Madhur. With the support of key strategic partnerships, such as the joint venture with the leading sugar and ethanol producer, Raízen Energia S.A. in Brazil, we trade about 11 million MT of raw and white sugar globally.
In Australia, our sugar business involves sugarcane cultivation, milling and refining to produce white sugar, brown sugar, caster sugar and syrups. We also produce ethanol as well as fertiliser.
We produce around 60% of Australia’s raw sugar and our 75%-owned refinery joint venture supplies about 75% of Australia’s and New Zealand’s refined sugar requirements and also exports to many Asia Pacific markets. We are also Australia’s largest generator of renewable electricity from biomass. We own leading sugar brands – CSR in Australia and Chelsea in New Zealand. To complement our diversified product and brand portfolio, we also distribute the Equal range of sweeteners.
In Indonesia, we are one of the top three sugar refiners. We operate two refineries in Java with a refining capacity of about 700,000 MT.
In Morocco, through our 29.9% associate (as at December 2017), Cosumar S.A. (Cosumar), we have one refinery and seven sugar beet/cane mills as well as the sugar brands, Al Kasbah, La Gazelle and El Bellar. Consumar is the sole sugar producer in Morocco and the third largest in the African continent, with a strong distribution network that includes exporting refined sugar to neighbouring countries in Europe.
We are a strategic industrial partner of Shree Renuka Sugars Limited (SRSL), the leading sugar company in India. In India, SRSL’s business comprises seven mills with a total cane crushing capacity of 5.5 million MT per annum; two port-based refineries, one each in Kandla and Haldia, with a combined capacity of 1.7 million MT per annum, a cogeneration capacity of 584 MW, as well as the sugar brand, Madhur. In March 2018, SRSL completed a debt restructuring exercise. As part of that exercise, the Group invested an additional US$120 million in SRSL, thereby increasing its stake from about 27% to 39%.
We have a majority 55:45 joint venture with Great Wall Food Stuff Industry Company Limited, the leading sugar company in Myanmar. The joint venture operates two sugar mills, a bio-ethanol plant and an organic compound fertiliser plant.
As at 31 December 2017, the Group has sugar mills and refining plants in the following countries:
| Milling | Refining | |
|---|---|---|
| Subsidiaries | ||
| Australia | 8 | 2 |
| New Zealand | - | 1 |
| Indonesia | - | 2 |
| Myanmar | 2 | - |
| Total no. of mills/plants | 10 | 5 |
| Total capacity (million MT p.a) | 19 | 2 |
| Associates | ||
| Brazil | 4 | - |
| India | 7 | 2 |
| Morocco | 7 | 1 |
| Total no. of mills/plants | 18 | 3 |
| Total capacity (million MT p.a) | 27 | 3 |
Sugar Developments
In 2017, Wilmar Sugar Australia finalised an ambitious agreement with its growers regarding sugar export and marketing. Growers who supply their sugar cane to Wilmar mills now have the additional choice of nominating Wilmar to market and export their share of the sugar produced. Growers have access to a unique range of services, including crop pre-payment, competitive financing, agriculture services and flexible pricing facilities. With cane production, milling, logistics and export services now fully integrated, we are able to deliver to growers additional value on a fully transparent basis. In the first year of the new marketing arrangement, Wilmar has significantly increased the volume of sugar exported to 1.2 million MT.
Industry Trend in 2017
World sugar prices declined sharply and traded to a low of 12.50 US cents per pound in June 2017. Sugar prices were negatively impacted by various factors, including the significantly higher sugar production and export deregulation in Europe; the record Centre South Brazil crop and the subsidised export programme of 2 million MT implemented by Pakistan. Nonetheless, trade flows remained strong due to the low crop in India and China. Global sugar consumption increased by 3 million MT and reached a record 183 million MT.
Our Performance
In 2017, the Sugar division reported a pre-tax loss of US$24.6 million which included a US$30.6 million impairment loss on our Australian refinery assets. The overall weaker performance was partly due to the timing effect of the new sugar marketing programme in our Australian milling operations which came into effect during the year. Under the new programme, certain proportion of sugar produced in 2017 will only be sold in the first half of 2018. The division’s results were further impacted by weaker performance from the merchandising, refining and consumer products businesses.
Sugar volumes declined 12% from 13.5 million MT to 11.9 million MT from lower milling and merchandising activities. Correspondingly, revenue decreased 14% from US$5.86 billion to US$5.05 billion.
Outlook and Strategy
In 2018, global sugar production is expected to exceed consumption for another year. Although India and Thailand are expected to have a strong crop recovery, Brazil is expected to have a crop reduction due to a price parity strongly in favour of ethanol. Increasing crude oil prices may impact sugar and ethanol parity in many countries. At current sugar prices, the global sugar industry will be challenged and some under investment are to be expected.