Illovo revenue up but earnings flat
November 20, 2009
By Simon Mundy
Illovo Sugar capitalised on a soaring world sugar price to post a 13% year-on-year rise in revenue to R4,25bn for the six months to September. Operating profit was up 35% to R1,24bn, helped by a major expansion of Illovo's Zambian operations as well as increased production and strong sales in Tanzania.
Headline earnings per share saw a rise of 28% to 185,2c, while the board declared a dividend of 32c per share "down 23% on the prior year period.
But the company predicted full year headline earnings "similar" to those of the previous year, due in part to the effect of the strong rand.
Illovo expected the rand's value to remain high for the remainder of the financial year, which would "have a negative impact on foreign currency denominated export revenue in respect of both sugar and downstream products, as well as the conversion of foreign subsidiary profits into rands for the season as a whole".
The board said yesterday full-year headline earnings per share would be 10%-20% lower than in the previous financial year, as a result of a R3bn rights issue in September.
Illovo, Africa's biggest sugar producer, benefited from a sugar price that more than doubled in the year to September, reaching a 28-year peak of $0,26c/lb. Drought saw India become a net importer of sugar, while Brazil's output suffered from heavy rains "as well as a substantial diversion of the sugar cane crop to the production of ethanol fuel.
Illovo CEO Graham Clark said he expected the sugar price to remain at its current level for "a couple of years". "There are some fairly fundamental factors driving the sugar price, on top of the weather. The cost of production in Brazil is really ticking up as a result of the strong currency and plants based further inland; and India has underlying structural problems. There has been no significant impact on the global sugar deficit."
Clark expected Illovo's exports to Europe to double within five years, after the European Union (EU) relaxed its sugar trade regime. From October 1, sugar producers in developing countries have been allowed tariff-free access to the EU market.
"We've been seeing this coming for some time; it's part of a reform process that took about five years," Clark said.
"It gives us a chance to tap into the high end of the market. At the moment our EU exports stand at about 150000 tons to 160000 tons."
Illovo predicted total sugar production for the year to March of around 1780m tons "a rise of 200000 tons from the prior year.
mundys@bdfm.co.za
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