Tongaat banks on new political climate
John Kachembere Markets Editor
SOUTH African sugar producer Tongaat Hulett is planning to ramp up production in Zimbabwe due to an anticipated economic recovery ushered in by the new political environment.
The Johannesburg Stock Exchange-listed agriculture and agro-processing group’s chief executive officer Peter Staude {pictured) said the major transition in the government’s leadership had created more positive local and international sentiments. “The prospect of an economic recovery in Zimbabwe is expected to translate into further growth in domestic demand, particularly in the industrial sugar market,” he said.
The group’s sugar production in Zimbabwe fell to 392 000 tonnes in the full year to March 2018 from 454 000 tonnes in the same period last year as low dam levels during peak growing periods limited irrigation.
Tongaat Hulett, which has sugar operations in about 20 locations in six countries which include South Africa, Botswana, Namibia, Swaziland, Mozambique and Zimbabwe, saw its headline earnings decrease to $49,08 million from $78,11 million compared to last year.
However, the group was confident that in the year 2018/19 it would be able to reverse the results by increasing earnings.
Staude said the group was well-positioned to benefit and be a key development partner, as agriculture and agro-processing in sub-Saharan Africa developed from a low base.
The organisation is focused on driving improved performance within its areas of influence and using its experience to navigate influences outside its control. Earnings and cash flows are expected to exceed those of the 2017/18 year,” he said.
The group said operating profit for the period also declined by 16,1 percent to $156 million, down from $185 million, while operating profit for various sugar operations was down by 34,15 percent to $66,5 million, down from $101 million.
Basic headline earnings per share declined to 534,8 cents a share, down from 852 cents compared to last year.
However, the group reported improved performance in other operations, with the starch and glucose operations recording a 12,16 percent increase in operating profit to $45,50 million, up from $40,57 million, as a result of higher sales volumes arising from an initiative to replace customers’ imported volumes with local production, new business development and growth in export markets.
Land conversion and development activities delivered operating profit of $52,58 million compared to last year’s $50,1 million and was 3,12 percent higher than the previous period resulting from the sale of 96 developable hectares.
The South African sugar operations, including downstream activities, recorded operating profit of $6,84 million compared to $31 million last year.
“Improved rainfall in the coastal areas of KwaZulu-Natal saw production increase to 513 000 tonnes, up from 353 000 tonnes. The recovery in production was negated by high volumes of imported sugar into the local market when over several months upward revisions to the import duty were not implemented timeously,” Staude said.
The Zimbabwe sugar operations generated an operating profit of $44,78 million, up from $40 million, as local market sales continued to grow, assisted by the refinery optimisation project that increased the availability of refined sugar for the industrial market.
Operating cash flow after working capital was $181 million, down from $253 million, and the group said improved cash flows generated by the starch and glucose operation provided some mitigation for the cash impact of lower profits from sugar operations.
Capital expenditure during the period totalled $173 million up from $96.2 million, with the commencement of the refinery project in Mozambique and considerable investment in sugar cane root replanting after the drought.