ILLOVO Sugar slumped to a six-year low in Johannesburg trading after saying a drought in South Africa will drag down profit next year.
Lower sugar export prices to key regions such as the EU were worsened by the weakening of the euro and the Brazilian real as well as weaker production in South Africa.
Illovo dropped as much as 12 percent to R18.59, the lowest intraday price since October 2008. The company said headline earnings per share would fall 25 percent to 45 percent in the year March 2016.
“The outlook is disappointing, driven by South African operations,” Sumil Seeraj, a Johannesburg-based analyst at Standard Bank Group, said.
“You’re not going to get huge product coming online, as well as weaker prices.”
South Africa’s worst drought since 1992 at the turn of the year has hurt farmers of maize and sugar, which is typically planted on a two-year cycle.
Illovo said record production in Zambia and Mozambique helped mitigate the shortfall in the continent’s second-largest economy. Profit fell 7.7 percent to R1.79 a share last fiscal year, Illovo said.
World sugar prices are languishing near the lowest levels in more than six years and have dropped 28 percent in the past year to 12 US cents a pound after a weakening currency in Brazil, the world’s biggest producer, made the country’s exports more competitive. The sugar industry has grown increasingly competitive in recent years due to excess supplies and a crowded marketplace.
“We’re hoping to return to normal in the next season, 2016-2017, rather than the current season,” Illovo managing director Gavin Dalgleish said.
The profit forecast for next year was a “broad range” heavily influenced by currency movements such as the euro and the Brazilian real, he said.
Illovo said tough global markets were offset by stronger demand in South Africa and Tanzania after the governments there took import protection steps against cheap and illegal sugar.
Illovo, which also operates in Malawi, Swaziland, Mozambique, Zambia and Tanzania, expected a medium-term price recovery in world sugar prices.
Dalgleish said Illovo would intensify diversification of its revenue and reduce exposure to sugar, including replicating its Tanzanian ethanol distillery in Zambia and the possibility of furfural production in Swaziland. Illovo’s sugar production fell 3.8 percent to 1.76 million tons in the year. Headline earnings per share for the year to March fell 7.7 percent to R1.79.
Shares fell 10.68 percent to R18.82. – Reporting by Banele Ginindza, Bloomberg and Reuters