Illovo Falls as Low Sugar Prices, Drought Cut Full-Year Profit

Illovo Sugar Ltd. fell the most in almost two years after saying profit will slide as much as 12 percent because of low global prices and a drought in South Africa, where it produces most of its crop.

Earnings per share will drop to as much as 1.75 rand a share for the year ended March 31 from 1.99 rand 12 months earlier, the Mount Edgecombe, South Africa-based company said in a statement Wednesday. The stock declined as much as 8.2 percent, the most since June 2013.

Revenue will be “negatively impacted by the recent sharp weakening of the euro, the full-year effect of low EU prices and persistent low world market prices driven by a weakening Brazilian real,” the company said in the statement.

Production will decline in South Africa due to “the previous season’s drought and frost,” it said.

Sugar has fallen 11 percent this year to 13 U.S. cents a pound, extending a decline from its 35 cent peak in 2011, the highest since at least 1990. Increased supply from countries including Brazil and Australia since then, coupled with a weaker Brazilian currency, have made conditions tougher for South African producers such as Illovo.

A drought in South Africa’s KwaZulu-Natal province, where more than 80 percent of the country’s sugar is grown, at the end of last year and beginning of 2015 will hurt production in the upcoming season, Illovo said.

“Increased growth in domestic and regional sugar markets and the weaker rand are anticipated to partially provide some relief from these challenging conditions,” Illovo said.

The company dropped 2.8 percent to 23.30 rand by 11 a.m. in Johannesburg trading, valuing the company at 10.7 billion rand ($883 million).

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