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2018 Chairmans Report

At the end of the 2017/18 season we find ourselves contemplating the customary combination of rising fortunes and waning prospects. This fluctuating sentiment is all too familiar but I suppose we must admit to ourselves that if it were any different, it just wouldn’t be farming. Nevertheless, it is necessary to reflect on past and pending developments to ensure that we continue planning for a viable and prosperous existence in our areas of operation.

The recent accomplishments experienced in the sugar industry were all too short lived. While the UCL factory delivered an exceptional performance, the welcome record RV prices were abruptly reversed following major losses in domestic market share to the relentless trend of importation. The current return on sugar cane is perilously close to the cost of production and farmers who do not have the benefits of volume may find it difficult to keep going. Concerns have therefore been raised as to the sustainability of the cane industry in its current form. Government has to date been unable to offer long term solutions. The reliance on continuous tariff increases is not sustainable, particularly if low world prices continue to erode the protection on offer. The prospects of diverse revenue streams remain at a theoretical level with no visible signs of progress. In addition, producers in the Southern African Customs Union seem intent on retaining their share of the local market even as local producers experience rapid decline. Some observers have argued that the industry should right-size itself, but one can hardly expect volunteers to step forward. While we have been through tough times before, there exists a concerning outlook in terms of our competitiveness as sugar producers. The company continues to do what it can to ensure that it is in the best possible position to fend against falling revenue. Throughput and maximum local market sales are chief amongst these.

The stronger Rand has significantly reduced export revenue in relation to wattle extract sales. In addition, the drought conditions over the past few years combined with the negative effects of Wattle Rust have resulted in significant losses in yield. Fortunately, the improved rains in recent times coupled with a larger harvesting area have resulted in much improved volumes delivered to the mill. While the recent strong run on bark prices seems to be coming to an end for now, sales volumes have at least remained strong.

Progress in sawmilling continues to be hampered by a competitive market space which has supressed revenue. The closure of several sawmills in recent times is a sober reminder of the vulnerable state of the industry. On the other hand, throughput at the Glenside mill has shown significant improvement in recent times, which together with continuing cost reduction initiatives, is expected to see operations through until the industry finds its feet again.

At the conclusion of the current reporting period we announced certain structural changes to the UCL Board. Our CEO, Mr. Rolf Lütge, as well as our Chief Financial Officer, Mrs. Heidi Tredoux, were appointed as Executive Directors. This move towards a more recognised oversight structure is not the only intended change. The Board has initiated a process of finding additional independent directors capable of providing insight and guidance complementary to the traditional agricultural based perspectives. It is important for the Company to be aligned with current social, political and economic

dynamics in order to ensure our continued relevance. In support of this we are looking to instil the necessary balance in terms of experience and skills set within the future Board.

The work of the various Board Committees has progressed unabated. The various accounts contained in this Annual Report bear testament to the contribution of Board members and senior staff in so far as their respective responsibilities are concerned. In an effort to become more efficient and to lessen the burden placed upon individuals representing the company’s interests, we have significantly reduced the number of meetings held during the year. The scheduled number of Board meetings and those of several Committees, have been halved, while other Committees have been merged or disbanded and their responsibilities transferred. As a result, agendas have become more focused and accountability appropriately apportioned amongst the relevant individuals and groups.

The Board has approved a dividend of 11.1c per share in recognition of the results achieved during the past year. In addition, the better than expected profits realised by the Sugar Division has prompted the announcement of an additional R50 price enhancement per ton of RV delivered by UCL growers. On behalf of the Board, I take this opportunity to thank our suppliers and employees for their continued dedication in support of UCL’s operations. In spite of the current challenges, we are working not only towards preserving what we have but also towards growth and development in support of diversity and sustainability.

Sugar farming | Sugar Manufacturing | Leather Tanning Products | Forestry | Saw Milling

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