“Alteo Group reports a lower profitability with persisting difficult market conditions for its sugar operations in Mauritius and lower prices in Kenya
GROUP REVIEW FOR THE QUARTER
LOWER PROFITABILITY OF THE SUGAR CLUSTER
Group revenue and normalised EBITDA dropped by 19% and 33% respectively in the quarter under review mainly explained by the lower sales volumes and prices achieved by the Group’s sugar operations. In line with the trend in revenue and normalised EBITDA, profit after tax decreased by 73%. Finance costs increased as the group geared up to finance the further development of its sugar operations in Tanzania and Kenya. Earnings per share deteriorated by 215% over the quarter mainly influenced by the adverse performance of the Mauritian sugar operations in which Alteo holds relatively high effective interests.
LOWER PERFORMANCE ATTRIBUTABLE TO MAURITIAN AND KENYAN OPERATIONS
The Sugar cluster posted a marked drop in profitability which was largely attributable to the Mauritian and Kenyan operations. In Mauritius, the agricultural operations suffered from a lower sucrose, mitigated by higher sugarcane yields, and from a lower revenue per tonne of sugar as the industry support measures implemented by Government in the previous crop season were not renewed this year. An adverse movement in the fair value of consumable biological assets further weighted on operational results.
The Tanzanian operations achieved higher profits for the quarter despite a drop in revenue. The negative impact of lower sales volumes was offset by the higher average market price achieved on the sale of locally produced sugar and higher contributions generated from the sale of imported sugar.
In Kenya, losses were driven by a significant decline in the average price for the quarter. The comparative quarter had benefitted from a sudden price hike following the seizure by Government of important amounts of sugar stocks considered unfit for human consumption.
CLOSURE OF OPERATION AND A LOWER TARIFF DROVE DOWN PROFITABILITY
The Energy cluster did not receive any contribution from Consolidated Energy Co Ltd (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.
RESULTS SLIGHTLY IMPROVED WITH HIGHER PROPERTY SALES REVENUE RECOGNITION
Slightly higher property sales revenue from Anahita were recognised during the period as the construction works progressed on 8 villas sold off-plan. Anahita Golf & Spa Resort and Anahita Golf Club posted stable results.
GROUP PERFORMANCE EXPECTED TO BE SUPPORTED BY THE PROPERTY CLUSTER AND THE TANZANIAN SUGAR OPERATIONS
In the short to medium term, the Mauritian sugar operations will continue to be affected by adverse price conditions on the world market, and the EU market in particular, and will remain heavily dependent on cash generated from the sale of land to fund operational losses. 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, beyond the support measures implemented for crops 2018 and 2019, Government is yet to come forth with longer term reforms, including a comprehensive biomass framework. 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 slightly lower yields observed to date are expected to be mitigated by strengthening prices. The energy cluster’s results going forward are expected to be adversely affected with no contributions from CEL and a 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 and several sales of serviced plots continue to materialise.