Illovo Sugar Sees More Dry Weather Ahead in Sub-Saharan Africa

  • Full-year EPS to fall 25%-45% on lack of rainfall in Africa
  • Producer sees higher sugar prices, recovery next season

Illovo Sugar Ltd., Africa’s second-biggest producer of the crop by market value, is expecting below-average rainfall in the first three months of next year, hindering output that already dropped almost 10 percent in the first half.

The worst drought in 23 years in South Africa and dry weather in neighboring countries helped cut Illovo’s net income by 82 percent to 141.8 million rand ($9.8 million) in the six months through September, the company said in a statement Monday.

“There’s a higher probability of below-normal rainfall than there is of above-normal rainfall” in January to March, Gavin Dalgleish, Illovo’s managing director, said in a phone interview. "We are expecting a recovery on our sugar production in the year ahead but it’s the extent to which we can recover that will be impacted."

The effects of the drought were most felt in South Africa, where Illovo doesn’t irrigate its crop due to hilly growing areas. The amount of cane supplied to the company’s factories in South Africa fell by 20 percent in the first half compared with the previous year. The drought has caused farmers to delay planting crops, slaughter animals and seek state aid.

Shares Decline

Illovo dropped 1.2 percent to 16.01 rand a share by 2:33 p.m. in Johannesburg. The stock, down 35 percent this year, fell to the lowest in almost a decade in July.

While the country accounts for the biggest portion of the Illovo’s revenue, it contributes only 10 percent to operating profit, which fell 37 percent in the six months to 881.4 million rand. The company’s biggest-earning countries are Malawi, Swaziland and Zambia.

Full-year earnings per share will be 25 percent to 45 percent below the 2015 level, it said. That’s in line with the company’s previous guidance.

Illovo said the recent recovery in sugar prices is “encouraging” and they should be buoyed by a supply deficit. Raw sugar has surged 47 percent in New York after falling to a seven-year low on Aug. 24, while the white variety has climbed 22 percent from a six-year low reached on Aug. 20.

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