Illovo Drops to 6-Year Low on South Africa Drought, Sugar Prices

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Illovo Sugar Ltd. slumped to a six-year low in Johannesburg trading after saying a drought in South Africa will drag down profit next year.

Illovo dropped as much as 12 percent to 18.59 rand, the lowest intraday price since October 2008. The company said headline earnings per share will fall 25 percent to 45 percent in the year through March 2016.

“The outlook is disappointing, driven by South African operations,” Sumil Seeraj, a Johannesburg-based analyst at Standard Bank Group Ltd., said by phone. “You’re not going to get huge product coming online, as well as weaker prices.”

South Africa’s worst drought since 1992 at the turn of the year has hurt farmers of corn and sugar, which is typically planted on a two-year cycle. Illovo said record production in Zambia and Mozambique helped mitigate the shortfall in the continent’s second-largest economy.

Profit fell 7.7 percent to 1.79 rand (15 U.S. cents) a share last fiscal year, Illovo said Monday in a statement. The stock declined 8.2 percent at 12:10 p.m. in Johannesburg.

Sugar has dropped 28 percent in the past year to 12 U.S. cents a pound after a weakening currency in Brazil, the world’s biggest producer, made the country’s exports more competitive.

“We’re hoping to return to normal in the next season, 2016-2017, rather than the current season,” Illovo Managing Director Gavin Dalgleish said in a phone interview. The profit forecast for next year is a “broad range” heavily influenced by currency movements such as the euro and the Brazilian real, he said.

Tongaat Results

Tongaat Hulett Ltd., Africa’s largest sugar producer, also announced earnings on Monday. The South African company said operating profit declined 12 percent to 2.1 billion rand in the year through March.

Higher sales at Tongaat’s starch unit helped counter the effect of the drought. The company also sold land near Durban for residential development, according to a statement. Land development “could have a record year” in the next 12 months, it said.

Tongaat fell 0.7 percent to 130.25 rand in Johannesburg trading. The company announced a final dividend of 2.10 rand a share, matching last year’s payout as cash flow from operations reached a record 2.5 billion rand.

Illovo declared a capital reduction distribution of 0.53 rand a share.

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