Drought, strong rand sour Illovo Sugar’s financials

Africa’s biggest sugar company, Illovo Sugar, has reported disappointing earnings for its financial year ending 30 September 2010.

A strong rand and a severe drought in the country’s sugarcane production areas were major contributors to the company’s 17% drop in actual operating profit and 14% drop in headline earnings compared to the corresponding period last year, according to Illovo managing director Graham Clark.More specifically, Illovo’s latest group operating profit was R522,9 million compared to last year’s R775,7 million.

By country, contributions were 47% from Malawi, 28% from Zambia, 12% from Tanzania, 7% from South Africa, 4% from Swaziland and 2% from Mozambique.

Illovo expected sugar production from its South African operations to be about 90 000t by the year ending 31 March 2010, 15% down on the previous season. But in general, the company said its sugarcane factories in Africa had operated satisfactorily over the most recent period – especially in Zambia where the Illovo mill was crushing in excess of 100 000t of sugarcane a week.

Illovo chairperson Robbie Williams said, “Domestic market sugar sales continue to be strong and good growth in volumes have been experienced in Malawi, Mozambique, Tanzania and Zambia. Marginal growth has occurred in South Africa and Swaziland.

“The resurgence in the world sugar price has positively influenced regional markets in central Africa and prices have become attractive for exports into this region from Malawi, Swaziland and Zambia.”Looking forward, Williams said Illovo’s overall sugar production for the year ending 31 March 2011 would be negatively impacted by the severe drop in output from South Africa due to the drought.

But this would be offset by production improvements in Zambia and Tanzania.Meanwhile, South Africa’s sugarcane farmers appear to be in high spirits after their farms received good spring rains recently. Colin Hohls from KwaZulu-Natal’s Eshowe area said the 100mm or so would give them a good start to the next season, although it needs to be followed up by rain for the next six months.