Skilled local resources key in Africa, says Illovo CFO Mohammed Abdool-Samad
Africa is complex and diverse, so here’s a secret tip from Mohammed Hoosen Abdool-Samad, finance director at Illovo Sugar. “To succeed, you need to have a deep understanding of the political and macroeconomic landscape. This can only be done by having skilled and experienced local resources that understand the business environment. Overreliance on expats can result in the business being ‘unplugged’ from the local business environment."
CFO South Africa spoke to Mohammed during an exclusive interview after the CFO Awards 2015, for which he was nominated. Mohammed has been instrumental in driving the strategy to transform Illovo "from a traditional pure sugar business into a business that is fully integrated into downstream activities such as co-generation, ethanol and furfural production". He says refinancing a loan in Zambia was one of the toughest decisions he had to make, but it has led to significant savings despite volatile currency risk.
What do you enjoy about your job?
"It gives me the ability to operate across the entire value chain, from strategy to risk management. The job of a finance director is about managing the future and delivering on strategy, and not only on reporting. I enjoy strategy and growth the most, because that is where we can really move the needle in the business."
What has been your toughest decision recently?
"Refinancing significant high interest local debt in Zambia with a relatively cheaper USD loan funded offshore. The difficulty was weighing the currency risk against the interest saving. Funding African operations is particularly difficult due to the volatility of the FX markets and the high cost of local debt, in addition to the liquidity of the local banks."
What is your recipe for success?
"Making sure I have the right people with the right skills who are motivated and committed. The key is setting objectives upfront in terms of what we're going to achieve in the year. I spend a lot of time with the team going through what we expect. Linked to this empowering people to deliver on their objectives, and holding to account when objectives are not met."
Can you describe your relationship with Managing Director Gavin Dalgleish?
"It is important that he sees me as a trusted advisor in just about all matters. Fortunately, his management style and my management style are similar. We work on the same principles, so we get on. When he was operations director, we worked closely together and built a strong relationship. Gavin appreciated the role I played, so when he became MD the relationship was already strong. But I don't think you can take it for granted, you've got to work at it all the time."
How do you deal with the sugar price war in Europe?
"Our businesses have duty free access into Europe, but that continent has just gone through a price war and they're abolishing quotas in 2017. They used to restrict European producers to producing 13 million tons of sugar and the other three to four million tons used to be imported duty free from African countries."
"We've had to build a strategy around how we reduce our European exposure by diverting sugar into the regional markets. . We supply bulk, raw sugar to Europe, but we also supply specialty, direct consumption sugar that gives us a premium brand with Fair Trade labels. Part of our strategy is also to increase the specialty market. We recently announced a R800 million investment in Zambia to increase our refined sugar capacity for the domestic and regional markets.
How do you as CFO deal with external influences on Illovo's results?
"Interest rate exposure is a big issue and some of the response to this issue is around very strong working capital management programs. We track everything in terms of debtors' days, stockholdings and fertiliser and packing material. We get quite granular in terms of all the dimensions we track."
"If you are sitting in overdraft in Malawi and paying 25-30% interest rates, then the focus on cash flow management becomes very important. Foreign currency rates change overnight and you need to be fairly agile in terms of how you respond to consequent inflationary pressures and opportunities created in the export markets."
"In short, we have world sugar prices at 7 year lows, FX volatility, high interest rates, and often foreign currency liquidity issues. We need to know exactly what's happening, when it's happening. The finance team needs to be adequately skilled and experienced to support the operations and proactively manage these risks."
"We've got a very robust risk management process. We try and make sure that when things move, we either anticipate that it was going to move, so we already know what the response needs to be, or when things happen and it's not anticipated we react quite quickly. Our risk management process extends across finance, treasury, operational, SHEQ, people and regulatory risks.
How does Illovo contribute to a transformed South Africa?
"True empowerment relates to your own people. We provide bursaries and scholarships and training programs for new graduates. Empowerment for me is also about trying to get more local people in our African operations into senior management, which we have been successfully doing for many years."
"We also support a lot of new small scale growers, which are also land claimants. They provide about 10 to 15 percent of our cane supply in South Africa and we provide access to funding, mentoring and seed cane. We provide similar small holder schemes in other parts of Africa, which results communities benefiting significantly from our sugar operations."
What are the opportunities for your business in Africa?
"Africa is growing in terms of sugar consumption at around 3.5 percent per annum. We are well placed to capture that growth based on our footprint in Africa. There are also other significant downstream opportunities from byproducts such as ethanol, co-generation and furfural. We are currently building a refinery in Zambia, and evaluating an ethanol project in Zambia as well. In Swaziland, we are conducting studies to build a furfural plant. We are also continuously looking at footprint expansion opportunities across the continent."
Where do you go for advice about doing business in Africa?
"It's important to know who to talk to in different situations, so we don't work single advisor model; we work with individuals that have certain skills. For tax in a particular country we go to a certain individual because he's the specialist in that country. If we want to do a transaction that involves borrowing money, then we have certain trusted advisors that understand our business and can advise appropriately. We try and develop fairly bespoke positions around who advises us. It's quite hard to develop that network. It takes many years."
What about attracting and retaining talent in Africa?
"It's important to have the right skills and experience at head office and at the operations who focus on the P&L, working capital, tax, cash flow and forecasting. I have a FDs' meeting three times a year, where I get all the guys from Africa down. We do talent management; succession planning; talk about any key IFRS updates, tax issues, funding, projects or opportunities. This forum allows me to build trust and relationships and identify and manage the talent out there. Building local capability is key in retaining talent in Africa."
What is your biggest success outside South Africa so far?
"The work we've done around refinancing our businesses. The work we've done in Zambia and Swaziland has made a significant contribution to the bottom line. It's the work around making sure we get out of Europe; the refinery, ethanol and furfural expansion work. Those would be the key things because what it does is transform our business from a traditional pure sugar business into a business that's not reliant on Europe and that has at least 20 percent of our business from downstream operations. The other bit would be achievements in terms of people. We need skilled and experienced people in Africa and we've managed to build good capability across all our operations, which has given us a level of credibility and stability in our respective operations."