Illovo boosts earnings, says imports dent SA prospects

27th May 2013

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Low-cost sugar imports are denting market prospects in South Africa and Tanzania and more effective tariff protection and market management were required, JSE-listed Illovo said on Monday.

MD Graham Clark said the group, which sells 60% of its sales volumes into domestic markets in the countries where it operates, had lodged an application to address the tariff level in South Africa. The company also applied for better regulation of imports into Tanzania.

“Without effective tariff protection and/or market management, prospects in these markets remain constrained,” he said.

Illovo on Monday reported a 43% increase in headline earnings a share of 189.6c for the year ended March 31, 2013, as group cane crop yields reached a record 6.475-million tons, and improved sales prices were realised in each of the company’s market segments.

Operating profit increased by 41% to R1.9-billion, which the group attributed to intensified cost control efforts and the subsequent 17.1% increase in operating margin.

Clark said the 2012/13 season had demonstrated favourable weather conditions, which drove record cane crop production and operational efficiencies.

Illovo’s sugar production division contributed 55% to operating profit, while the cane-growing division contributed 40%, and the downstream and power generation division contributed 5%.

Following the previous year’s drought, a notable cane production increase was reported in South Africa, while Zambia and Swaziland benefited from recent factory expansions.

Total cane production from independent farmers had also increased, with 8.4-million tons having been delivered to Illovo’s factories over the year. This resulted in the group's total sugar production increasing over that of the previous season by 14% to 1.75-million tons.

Improved sugar availability bolstered an increase in sales volumes by 11% year-on-year, while improved sales prices yielded an increase of R1.9-billion in sugar revenue.

Despite lower furfural sales, combined revenue from downstream products also improved, resulting in group revenue totalling R11.1-billion – a 21% year-on-year increase.

Further, cane quality was generally better than the season before, with the levels of sucrose content in cane, in particular, higher in all operations. Cane produced in Swaziland was the only exception, where wet conditions depressed sucrose production.

Looking ahead, Illovo expected the 2013/14 season to reflect further focus on capacity utilisation and productivity across the group, as well as continued favourable weather conditions, underpinning a moderate increase in sugar production for the coming year.

However, the company said that declining market fundamentals in sugar, including a continued world sugar surplus and low ocean freight rates, would likely put negative pressure on pricing in the group's exports markets.

“The group's operating margin will likely come under pressure during the coming year as global sugar prices ease further, and, consequently, cost control will remain vital to maintaining these margins,” said Clark.

He added that the company would continue to evaluate opportunities for further expansion on the continent, but would first embark on stringent risk assessment prior to the progression of any possible opportunity.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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