Ayanda Mdluli and Reuters
Illovo delivered an impressive 31 percent increase in operating profit for the year to March despite writing off costs of R173 million spent over four years on a project in Mali.
The sugar producer withdrew from Mali largely due to political risk and funding difficulties and will focus on growth opportunities elsewhere in Africa.
However, this did not have a significant impact on the company’s operating profit, said Graham Clark, the managing director of Illovo.
“On the African landscape, west Africa has… increased in risk profile and therefore other regions, such as east Africa and central Africa, would come to the fore once again.
“We are focusing across the region. Those would be areas where you have the best fundamentals to grow cane and attractive markets,” he said.
The Markala Sugar project, a proposed public-private partnership between the government of Mali and Illovo, had been expected to produce 1.5 million tons of cane a year.
Illovo also has operations in Malawi, Zambia, Swaziland, Tanzania and Mozambique.
The company’s 31 percent increase in operating profit to R1.35bn resulted from a strong commercial performance despite lower production levels.
A weak rand delivered exchange rate gains and reduced operating costs.
“Despite lower sugar production, a drive to maximise opportunities in a favourable market environment, together with a focus on cost control, enabled the group to grow profit year on year,” Illovo said.
The company lifted headline earnings by 18 percent to R610m, while turnover grew by R1.1bn to R9.2bn.
Sugar sales volumes fell by 5 percent as a result of lower sugar production, which fell 7 percent to about 1.53 million tons this year.
Diluted headline earnings a share stood at R1.32 compared with R1.12 the previous year.
Analysts polled by Thompson Reuters had forecast diluted headline earnings a share of R1.33.
Illovo explained that the decline in output was due to the impact of a second year of drought in KwaZulu-Natal. South African sugar production declined by 24 percent.
Clark said the current 2012/13 season should see a new record volume of group cane production.
“Sucrose levels look set to be more normal with early season trends supporting this likely outcome. Therefore, an increase in anticipated sugar production is expected from a better season in South Africa, and further increases elsewhere in the group,” he said.
Clark added that market opportunities remained positive, while an ongoing focus on lowering production costs might limit the impact of inflation on the group cost base.
He explained that sugar in Africa was in short supply and the company’s main concern would be to make sugar available in key markets, adding that 65 percent of sales were in the local market.
Illovo’s sugar exports to Europe topped 400 000 tons in the year to March. Clark expected a slight increase in 2012/13.
Illovo’s shares closed 1.4 percent higher at R26.27.