Johannesburg - Illovo Sugar’s profits for the year to the end of March were negatively impacted by the effects of El Niño on the agricultural sector as the drought caused havoc in the sugar production business, it said.
The company said the year-on-year sugar cane production decrease caused by the drought was down by 14 percent from 1.76 million tons to 1.512 million tons.
Read: Few sweet spots for Illovo
Illovo said on Friday that the drought had impacted directly and indirectly on its operations across all six countries in which it had businesses.
The group’s operating profit declined by 14.8 percent to R1.41 billion, down from the R1.66bn reported in the last period.
The group said lower than normal rainfall persisted across the southern African region, impacting river, dam and lake levels in Swaziland, Zambia, Malawi and South Africa.
It said these stressed growing conditions not only reduced sugar cane yields, but also increased vulnerability to pests, such as yellow aphids.
Illovo managing director Gavin Dalgleish said these drought effects and the flood damage suffered in Mozambique during January 2015 had resulted in a sharp decline in end-of-season cane supply across all countries of operation.
“The ‘perfect storm’ of sustained low export sugar prices, reduced domestic demand in Malawi, currency volatility and high interest rates in various jurisdictions, exacerbated by the impact of the regional drought on sugar production, weighed heavily on business performance,” Dalgleish said.
Headline earnings per share declined by 36.5 percent to 113.6 cents per share. Illovo’s revenue was down by a small margin to R13.17bn from R13.27bn the previous year.
Dalgleish said the persistent dry weather conditions across the region and poor summer rainfall would further delay the anticipated sugar production recovery during the 2016/17 season, with a particularly adverse impact expected in Swaziland.
The tough sugar commercial environment saw total group revenues reduced by 0.7 percent, which, in turn, resulted in the operating margin falling from 12.5 percent to 10.7 percent.
Three divisions
The group’s operating profit was a result of three divisions: sugar production contributed 59 percent, down from 71 percent in 2015; downstream added 24 percent, up from 16 percent in 2015; and cane growing increased from 13 percent to 17 percent.
Wandile Sihlobo, a senior agricultural economist at Agricultural Business Chamber, said despite the recent rains, the drought in South Africa was far from over.
“The high prices will still hurt companies operating in the agricultural sector as the after effects of the drought will continue,” he said.
“If we start experiencing good rains in summer it doesn’t mean that prices of agricultural products like maize will drop automatically. The high prices will remain with us until at least the end of 2017.”
Dalgleish said he also expected the present conditions across the region to continue.
He said these would delay the anticipated sugar production recovery during the 2016/17 season.
Overall sugar production is expected to be similar to the 2015/16 season.
In April, Illovo Sugar shareholders supported a takeover by Associated British Foods (ABF), the world’s biggest sugar producer, in a R5.6bn deal.
ABF has owned a 51 percent stake in Illovo since 2006 and will acquire the remaining 48.65 percent stake it does not already own after agreeing to pay R25 a share, representing R5.6bn to be settled in cash.
The deal is subject to the fulfilment of conditions, including the approval of the JSE, which is required by September. The group did not declare a dividend in the current year and it paid 90c per share as a dividend in 2015.
Illovo shares closed 0.04 percent down on the JSE on Friday at R24.74.
BUSINESS REPORT