Johannesburg — MARKETS punished Illovo Sugar yesterday after it predicted flat earnings growth for this financial year, despite high sugar prices.

Stock in Africa's biggest sugar producer closed 6,47% down at 3340c, as the group voiced concerns over the effect of the strong rand on its South African operations.

In a trading statement, Illovo said that it expected the rand to remain strong for the rest of the financial year, damaging its export revenue . It also noted that a rights issue in September would dilute earnings per share 10%- 20% compared with the previous financial year.

A strong performance in the first half of the financial year was ascribed to improved world market sugar prices, as well as increased production in Zambia and Tanzania.

Earnings per share for the six months to September were up 30% compared to the corresponding period last year, with headline earnings up 25%.

But the group foresaw earnings in the six months to March next year being "similar" to the previous corresponding period .

"This is due to the value of the rand, which is currently projected to remain strong for the remainder of the year. This will impact negatively on foreign currency denominated export revenue in respect of both sugar and downstream products."

Operating profit for the full year ending March 31 next year were expected to be 10%-20% higher than in the previous year; but headline earnings for the year were "anticipated to be similar to those of the previous year".

Chris Gilmore, an analyst at Absa Asset Management, said the fall in Illovo's share price was due in part to "profit-picking" among investors.

"That earnings are projected to be flat could be seen as disappointing, but these results are actually very good. They've benefited from the higher world sugar prices."

The price of raw sugar more than doubled in the year to September, reaching a 28-year high of 24,85/lb. Investor expectations of further increases have been dashed, said Gilmore. "The sugar price is notoriously volatile, but it has not done a lot in the last few weeks. The price rise was largely driven by crop problems in Brazil and India, but supply has since come back on the market."