Johannesburg - Sugar producer Illovo Sugar on Thursday reported a 35% leap in headline earnings per share from 81.3c to 109.9c on a sugar season basis for the six months ended
September.
Headline earnings of R384.8m reflected a 36% improvement
over the same period in the previous year.
Group operating profit which increased by 31% to R687m benefited from improved domestic market sugar sales, higher world and regional sugar prices, weaker exchange rates and good results from the downstream operations.
Lower sugar production in South Africa and lower than anticipated production in Zambia following the first phase of the expansion project, partly offset these benefits.
Don MacLeod, managing director, commented: "We are pleased with these results, which have benefited from strong domestic sugar sales, higher world and regional sugar prices, weaker exchange rates, and good performance from the downstream operations.
"We are particularly focused on completing the second phase of our major expansion project in Zambia by the end of March 2009, and the expansions in our operations in Malawi and Mozambique are being progressed. Sugar production in Mali is expected to commence in October 2011. We anticipate good growth in earnings for the full year."
The group declared an interim dividend of 41.5c per share which
was 26% more than that declared for the previous comparative half-year.
The contributions to operating profit were sugar production 55%, cane growing 33% and downstream 12%. By country, contributions were South Africa 16%, Malawi 45%, Zambia 16%, Swaziland 8%, Tanzania 10% and Mozambique 5%.
"The season to-date has been affected by variable weather conditions. Both South Africa and Swaziland had a very dry winter, although South Africa has received welcome spring rains. The rest of the group has experienced normal weather which with effective irrigation and long sunshine hours has
been conducive to good cane growth.
"In general, the sugar factories have performed satisfactorily. Phase 1 of the factory expansion in Zambia has been difficult and the wet conditions experienced in the offcrop period resulted in a delayed start to the season.
"Mechanical performance of the plant was disappointing in the first few months of the season, although the factory is now settling down and phase 2 of the project is on line to commence operation in April 2009. This has restricted Zambian sugar production for the season which is forecast to be similar to that of last year," the group said.
Assuming normal growing and operating conditions for the remainder of the season, group sugar production is expected to be around 1.925 million tons which is approximately 130 000 tons above last year, the group added.
Drop in production
"The increase in production has occurred in all countries of operation, although the increase in South Africa has arisen due to the repossession of the Umfolozi mill at the beginning of the season.
"The mills in South Africa, where most of the cane is produced under rainfed conditions, have seen a decline in production due to a decrease in cane yields. The whole South African sugar industry has been similarly affected.
"Downstream operations have performed well and output is anticipated to be similar to that of last year. World prices of furfural and lactulose have been strong.
"The world sugar price has been extremely volatile. In the early part of the year, prices were much stronger as a result of a forecast deficit in production; however, during recent months, prices have fallen similarly to other commodities.
"
Overall, the revenue realised from exports to the world
market is significantly higher than in the previous year, and the improved world price has also impacted favourably on export revenues from regional markets," the group stated.
Domestic sugar market sales and prices in the countries of operation outside South Africa have been strong, however in South Africa imports have had a negative impact on sales volumes.
"Subject to certain suspensive conditions, including approval by the Competition Commission, Illovo has concluded an agreement with a company established by local cane growers for the sale of its interest in the Umfolozi mill with effect from March 31 2009.
"The Mali project continues to make progress, albeit slowly, particularly the environmental and social impact studies which are required in respect of the concessional funding for the agricultural development.
"Sugar production is expected to commence in October 2011. The growth plans in the other countries of operation are on schedule," Illovo said.
It added that operations for the current year are progressing well, but the results for the year will be influenced by the level of the rand compared to other currencies, the world sugar price and final sugar production.
"Provided there is no major change to these factors, it is presently anticipated that for the full year ending March 31 2009, headline earnings will be between 15% and 25% higher than in the previous financial year," it said.
- I-Net Bridge