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The Sugar Corporation of Malawi (Sucoma), whose group profits for the year ended March 31 have grown by more than half to K1.06 billion, said yesterday earnings are hitting below targets because of high interest rates and the economic slowdown.
Sucoma public relations officer Ireen Phalula said in an interview in Blantyre the sugar group gained in earnings from K651.5 million last year, owing to improved factory performance at both sugar mills at Nchalo in Chikwawa and Dwangwa in Nkhotakota and reduced borrowings.
Both estates were accredited with the ISO 9001/2000 quality management system during the year. She said progress was made towards the company’s goal of being a globally competitive sugar operation in the season.
Phalula said the company also enjoyed favourable weather, which boosted sugar production to a record 260 441 tonnes. She said net borrowings in the year under review dropped to K933.7 million from K2.2 billion due to strict control on working capital.
She said total revenue took a ride on the back of a weaker kwacha and increased exports to close the year at K7.34 billion from K5.486 billion, with exports contributing K3.408 billion. Operating profits rose K2.195 billion, an increase of K890 million on last year, Phalula said.
She said while the company continues to develop export markets, especially in eastern and southern Africa and Europe, the local market remains depressed as the economy reels under the effects of famine and suspension of aid for budgetary support.
Interest rates are still high at 40 percent, while economic analysts say economic growth slumped last year to a negative 1.8 percent.
But she said despite the improvement in headline earnings, growth has remained lower than targeted for the last five years. She said at nine percent, the overall return on net assets was disappointing when compared to high cost of borrowing and alternative low risk and high yielding investment opportunities, such as treasury bills, available to potential investors.
“This growth is not good enough for the company. We expected by now to have a return on net assets of about 32 percent given the amount of money shareholders have invested but this has not happened,” said Phalula.
The company, whose 75.98 percent shares are held by South Africa’s Illovo Sugar Group and the balance spilt between institutional investors and the public, has reinvested K143 million in the business to step up output efficiency and reduce costs.
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