Illovo falls as sugar prices, drought cut profit

Johannesburg - Illovo Sugar [JSE:ILV] fell the most in almost two years after saying profit will slide as much as 12% because of low global prices and a drought in South Africa, where it produces most of its crop.

Earnings per share will drop to as much as R1.75 a share for the year ended March 31 from R1.99 12 months earlier, the Mount Edgecombe, the company said in a statement on Wednesday. The stock declined as much as 8.2%, the most since June 2013.

Revenue will be “negatively impacted by the recent sharp weakening of the euro, the full-year effect of low EU prices and persistent low world market prices driven by a weakening Brazilian real,” the company said in the statement.

Production will decline in South Africa due to “the previous season’s drought and frost,” it said.

Sugar has fallen 11% this year to 13 US cents a pound, extending a decline from its 35c peak in 2011, the highest since at least 1990. Increased supply from countries including Brazil and Australia since then, coupled with a weaker Brazilian currency, have made conditions tougher for producers such as Illovo.

A drought in the KwaZulu-Natal province, where more than 80% of the country’s sugar is grown, at the end of last year and beginning of 2015 will hurt production in the upcoming season, Illovo said.

“Increased growth in domestic and regional sugar markets and the weaker rand are anticipated to partially provide some relief from these challenging conditions,” Illovo said.

The company dropped 2.8% to R23.30 by 11:00 in Johannesburg trading, valuing the company at R10.7bn.