Zambia Sugar cuts output forecast to 350,000 T

* Output forecast down from 420,000 T on excessive rains

* Operating profit more than doubles to $26.85 mln

* New EU sugar market reforms boost income

LUSAKA, Nov 2 (Reuters) - Zambia Sugar (ZSC.LZ), the country's biggest sugar producer, said on Monday it had cut its output forecast for the year to March 2010 to 350,000 tonnes from 420,000 tonnes due to excessive rains.

Zambia Sugar, a unit of South Africa's Illovo Sugar (ILVJ.J), said in its financial results for the first half to the end of September that off-season rains in the early part of the growing period negatively affected sugar production, although it would still be higher than ever before.

"Should the rains hold off until early December, sugar production, although lower than anticipated, will exceed all previous records and is forecast to be in the region of 350,000 tonnes for the year," the company said.

Zambia Sugar said it had experienced start-up problems after the commissioning of the second phase of expansion at the Nakambala factory in April, but most of those challenges had now been resolved.

Operating profit more than doubled to 124.3 billion Zambian kwacha ($26.85 million) in the first half from 46.4 billion kwacha in the same period last year.

Domestic sales volumes were in line with expectations and exports also performed well, the company said.

"Export demand from regional markets has been buoyant with good realizations being achieved as a result of increased world sugar prices, whilst preferential quotas into the European Union (EU) have been supplied in full," the company said.

The firm said lower prices of EU sugar exports, which became effective in October following new EU sugar market reforms, would be offset by increased market access, as Zambia was now allowed duty free and quota free entry into the EU market.

"The increased volumes due to be exported to the EU will benefit revenues although the strengthening Kwacha (currency) will negatively impact on export earnings," Zambia Sugar said.

The company said it raised 253 billion kwacha from the rights issue it completed in August and the proceeds had been used to pay for the acquisition of a farm and expansion the Nakambala sugar plant.

Illovo Sugar partially reduced its rights and reduced its shareholding in Zambia Sugar Plc from 89.71 percent to 81.55 percent, thereby increasing public ownership in the firm, the company said. ($1=4630 Zambian Kwacha) (Editing by Muchena Zigomo and Karen Foster)