14 February 2020
GROUP REVIEW FOR THE SEMESTER
IMPROVED PERFORMANCE OF THE SUGAR CLUSTER
Group revenue for the semester dropped by 12% mainly explained by a lower revenue for the Energy cluster, following the closure of Consolidated Energy Co Ltd (CEL) in December 2018, and for the Kenyan sugar operations which suffered from a lower sales volume and price. However, normalised EBITDA improved by 3% as the factors mentioned above were offset by the better performance of the sugar operations in Tanzania to a large extent. Profit after tax posted a 12% increase arising mainly from a deferred tax credit in Kenya, thereby reducing the group tax charge.
Earnings per share recovered by 269% over the semester influenced by the better performance of the Mauritian sugar operations in which Alteo holds relatively high effective interests.
IMPROVED PERFORMANCE ATTRIBUTABLE TO THE TANZANIAN OPERATIONS
The Sugar cluster posted a marked improvement in profitability which was mainly attributable to the Tanzanian operations. In Mauritius, the operational losses were reduced by a higher ex Mauritius Sugar Syndicate price and better sugarcane yields. Further, following a Cabinet Decision in late December 2019, last year’s financial support provided to small planters from the Sugar Insurance Fund was finally extended to corporate planters and millers resulting into a Rs120m support for Alteo.
The Tanzanian operations achieved higher profits for the semester explained by the better average price achieved on the domestic market and higher sales of locally produced sugar as opposed to imported sugar within the sales mix, the former generating better margins.
In Kenya, losses were driven by a significant decline in the average price for the semester. Further, production and sales volumes were adversely affected as the mill stopped for a 3 week planned maintenance programme in November 2019. The mill had not stopped in the comparative semester.
CLOSURE OF OPERATION AND A LOWER TARIFF DROVE DOWN PROFITABILITY
The Energy cluster did not receive any contribution from CEL as its Power Purchase Agreement (PPA) expired in December 2018 and its operations subsequently closed. Moreover, the results of Alteo Energy Ltd (AEnL) were adversely affected by a lower tariff following the re-negotiation of its PPA and by a higher depreciation charge following a review of the useful life of its equipment.
IMPROVED RESULTS WITH HIGHER PROPERTY SALES REVENUE RECOGNITION
Higher property sales revenue from Anahita was recognised during the period as the construction works progressed on 11 villas sold off-plan and the sale of two serviced plots were signed. Anahita Golf & Spa Resort and Anahita Golf Club also posted better results driven by a higher average guest spending and occupancy.
GROUP PERFORMANCE EXPECTED TO BE SUPPORTED BY THE PROPERTY CLUSTER AND THE TANZANIAN SUGAR OPERATIONS
Given the seasonality of the Mauritian sugar operations, most of their annual revenue has been recognised to date and losses are expected to increase over the remaining part of the financial year. As previously reported and despite the recent price upturn, these operations will continue to be affected by adverse conditions on the world market, and the EU market in particular. In order to face this challenging context, management has been restructuring its operations with the objective of achieving efficiency gains and cost reductions. At industry level, Government is yet to come forth with longer term reforms, including a comprehensive biomass framework. The recent appointment of the World Bank to carry out a study on the viability of the cane industry in Mauritius is welcomed.
An enhanced sugar cane availability in Kenya, as the area under cane further develops, is expected to continue to be beneficial to the operations. However, sugar prices stabilising below the long term average level may have an adverse effect on the results of the next quarters. In Tanzania, the impact of lower yields observed to date are expected to be partly mitigated by strengthening prices.
The energy cluster’s results going forward are expected to be adversely affected with a lower tariff and higher depreciation charge at AEnL.
The positive trend in the property cluster results is expected to be sustained as the construction of off-plan villas progresses