Illovo delivers sweet results

South African sugar producer Illovo Sugar (ILV) reported a 43% increase in diluted headline earnings per share to 147.7 cents for the year ended March from 101.4 cents a year ago.

A final dividend of 45 cents per share was declared, making a total distribution for the year of 75 cents - up from 62.5 cents a year ago.

Turnover was up 15% to 6.3 billion rand, while operating profit was 38% higher at 1.03 billion rand. Headline earnings grew 46% to 515.3 million rand.

Illovo MD Don MacLeod described the results as "solid", with good increases in revenue, earnings and margins.

"As reported in April, our overall sugar production was impacted by adverse weather conditions in South Africa and Tanzania but we achieved record production in Malawi. We are making a significant investment in Zambia to almost double our production in that country in the next two years. This is the first major step towards further expansion into Africa as part of our strategy of being the leading, lowest-cost sugar producer on the continent."

The group said the 46% growth in headline earnings was achieved through much improved world and regional sugar prices, higher downstream product export prices, strong domestic market sales, cost savings and the weaker rand.

These factors more than offset the negative impact of lower sugar production, primarily in South Africa and Tanzania.

The contributions to operating profit were: sugar production 59%, cane growing 33% and downstream 8%. By country contributions were: South Africa 21%, Malawi 39%, Zambia 22%, Swaziland 7%, Tanzania 9% and Mozambique 2%.

Group cane production of 5.44 million tons was similar to that achieved in the previous season, whilst sugar production of 1.72 million tons was significantly lower due to adverse weather conditions in South Africa and Tanzania. Record cane production was achieved in Malawi.

Factory performance in general was satisfactory with high levels of mechanical and operational efficiency being achieved, it said. The operation in Mozambique performed well and a number of records were established, whilst record sugar production was attained by the operations in Malawi.

The recovery of sugar from cane was in general lower than in the previous year, partly as a result of poorer cane quality. The downstream operations performed well, with record output of ethyl alcohol, diacetyl and lactulose.

The group supplies sugar and downstream products to domestic, regional and world markets. Domestic sales are very important to the business, and it is encouraging that they have shown an improvement across the group, it said.

Sales into domestic markets contributed 64% to total revenue, whilst exports to 110 countries contributed the balance. A strength of the group is that 74% of sugar production by volume and 80% by value was sold into the domestic or premium-priced export markets, it added.

In the current year, own cane, sugar and downstream production are anticipated to exceed the levels achieved in the past year, Illovo said.

"World prices have declined from last year’s levels which will impact on revenues from both world and regional markets. The results for the current year will again be impacted by the level of the rand compared to other currencies, particularly the US dollar," it added.

In recent weeks, the rand has strengthened considerably which will impact negatively on profits. Overall, it is anticipated that growth in earnings in real terms will be achieved in the year ahead.

Illovo’s existing factory and field operations have significant growth potential and the major expansion in Zambia is the first step in this process. Further investments in Africa continue to be pursued.

"We expect to report further growth in earnings in the year ahead," MacLeod said.