Illovo interim earnings sweet

Illovo Sugar reports diluted headline earnings per share of 80.9c for the six months ended September.

Illovo Sugar (ILV) reported diluted headline earnings per share, on a sugar season basis, of 80.9 cents for the six months ended September from 75.2 cents a year ago. HEPS were up 7% to 81.3 cents.

An interim dividend of 33 cents per share was declared, up 10% on a year ago.

On a sugar season basis, the group achieved headline earnings of 284 million rand, up 10% on a year ago.

Despite an increase in sugar production and improved domestic market sales and prices, group operating profit - at 523.7 million rand - was similar to that of last year, largely as a result of lower world and regional sugar prices.

Illovo MD Don MacLeod said: "We are announcing today a major new investment in Mali for the construction of a 200,000 ton sugar mill, ethanol plant and electricity co-generation facility.

"This exciting investment fits with our strategy of expanding the group’s production base in Africa and to be the leading, lowest-cost sugar producer on the continent.

"We are also pleased with the progress of our expansion in Zambia with the first phase of the commissioning due in April 2008."

The group said the contributions to operating profit were sugar production 62%, cane growing 28% and downstream 10%. By country, contributions were South Africa 21%, Malawi 40%, Zambia 17%, Swaziland 9%, Tanzania 10% and Mozambique 3%.

Illovo noted that the season-to-date has been affected by variable weather conditions. In South Africa and Swaziland, after a very dry winter, welcome rains were received in late spring.

In Malawi localised flooding at Nchalo early in the year negatively impacted on cane yields, and in Tanzania, abnormal heavy winter rain during August disrupted factory operations.

The rest of the group has experienced normal weather conditions which, with effective irrigation and long sunshine hours, have been conducive to good cane growth.

"In general, the sugar factories have performed satisfactorily. Assuming normal growing and operating conditions for the remainder of the season, group sugar production is expected to be around 1.875 million tons which is 150,000 tons above that of last year," it said.

The main increases in the production forecast have occurred in South Africa, Tanzania, Zambia and Mozambique.

Downstream operations have performed well and output is anticipated to be similar to that of last year. World prices of furfural and its derivative products have been strong, it said.

The world raw sugar price has been volatile, but recently has stabilised at around US10 cents/lb. Last year, the world price rose to almost US20 cents/lb and the South African sugar industry achieved an average realisation of US14.92 cents/lb in respect of world raw sugar sales, whereas in the current year, it is anticipated that the average price will only be slightly over US10 cents/lb.

The lower world price has also impacted negatively on regional sales.

Improved opportunities in the European Union (EU) continue to evolve as EU market access arrangements are modified in terms of ongoing trade negotiations.

From 2015 onwards, it is intended that duty free, quota free terms would apply to all ACP and LDC suppliers, subject to normal trade safeguards.

"These developments will ultimately benefit the group, as four of the countries in which it operates, Malawi, Zambia, Tanzania and Mozambique, are classified as LDCs, whilst Swaziland is a member of the ACP group," Illovo said.

The major expansion of the group’s production facilities in Zambia is well advanced and significant progress has been made in the areas of canal construction and new land development.

The factory upgrade is being phased over two years with the first phase due for commissioning in April 2008, in time to receive increased cane supplies from the first of the estate and grower cane expansions.

The second phase of factory expansion is due for completion in April 2009, after which the factory will have the capacity to produce 440,000 tons of sugar per annum, an increase of 200,000 tons per annum compared to current capacity.

Looking ahead, Illovo said results for the current year will be impacted by the level of the rand compared to other currencies, the world sugar price and final sugar production.

"Our sugar production is expected to be higher this year despite variable weather conditions across our operations. We anticipate a modest increase in our earnings for the year, considering the stronger rand and lower world sugar prices," MacLeod added.

Provided there is no major change to these factors, it is anticipated that, for the year ending 31 March 2008, modest growth in earnings in real terms will be achieved, the group said.