Illovo expects increased sugar production - CNBC Africa

Illovo expects increased sugar production

Earnings

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Illovo Sugar expects good growth in production. PHOTO: Getty Images

The group expects the increased output to come mainly from South Africa, and to a lesser extent Swaziland, while the other operations are forecast to remain at similar levels to last year.

In its interim report for the six months ended 30 September 2013, the company says sugar market conditions across the group are expected to remain difficult with imports into South Africa and Tanzania impacting negatively on domestic market sales and prices in those countries.

“While regional prices have held up well over the period, sugar sales and prices into the region are starting to be affected by the world sugar surplus. Prices in the EU, at the commencement of the new season, are declining and will impact on the group's remaining sugar sales into that market in the current year. Currency weaknesses are expected to assist export earnings for the full year. Good growth in downstream earnings is anticipated,” the company said.

Cost control remains a priority but the group's operating margin is anticipated to be lower than last year due to the present market conditions. Net financing costs are forecast to be similar to last year while the effective tax rate should be slightly lower. Cash generation remains strong and gearing is anticipated to remain low.

Profit after tax rose to R 1.11 billion from R962.8 million, resulting in an improvement of 14 per cent in headline earnings. Operating profit for the six months ended 30 September 2013 reflected an improvement of 9.4 per cent compared to the corresponding period last year.  

The statement said the result was driven primarily by increased sugar production, which was 9.4 per cent higher than the half year period to 30 September 2012. Revenue is 23 per cent higher than the corresponding period last year due to an 11.6 per cent increase in sugar sales volumes, as well as the impact of the weaker Rand on South African downstream sales and EU export realisations in Swaziland.

However, domestic sales volumes were marginally lower than the previous year and with increased export volumes at lower prices, margins were under pressure. Cost control measures were a feature of the operating environment but overall, margins have declined compared to last year.  

Net financing costs were similar to last year at R152.9 million whilst the effective tax rate declined from 28.2 per cent to 25.5 per cent

“In general, operating conditions have been favourable during the first 6 months of the year and a total of 11.7 million tons cane was crushed, reflecting a 7.5 per cent increase compared to the same period last year. On average, sucrose levels have been slightly better. Cane supply and cane quality have been good and the group's sugar factories have performed reasonably well. The four South African factories have operated at high levels of efficiency, while the expanded factories in Zambia, Swaziland and Mozambique have achieved throughput levels in line with their expanded design capacities.   A total of 1.4 million tons of sugar has been produced in the half year, 9.4 per cent more than the same period last year,” the company said.

Gavin Dalgleish, the managing director said the favourable operating conditions experienced during the period resulted in a positive increase of 9.4 per cent in sugar production and 11 per cent in sales volumes.

“We are encouraged by our achievements in executing recent capital investments at the central sugar distribution centre in South Africa, the new potable alcohol distillery in Tanzania and the cogeneration plant in Swaziland, which are all operating successfully and offer a template to be replicated across the group consistent with our core sugar and downstream product strategy. Although we continue to prioritise cost control and efficiencies, we expect that challenging market conditions will continue to put pressure on our operating margins," said Dalgleish.

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