JSE-listed Tongaat Hulett’s headline earnings grew by nearly 5% year-on-year to R661-million for the six months ended September 30.
Diluted headline earnings a share rose to 573.8c during the half year, compared with 546.7c in the prior comparable period.
“Sugar operations have seen the beginning of the production volume recovery after the drought conditions of the previous two years. This benefit was offset by the impact of lower world sugar prices and a period of high imports into South Africa,” CEO Peter Staude said in a statement on Monday.
Tongaat Hulett expects to increase its share of total industry production to some 26% in 2017/18.
Sugar production for the full year is, however, expected to be lower than that of the prior year owing to the impact of low dam levels in 2016 that led to restricted irrigation during the key growing period for this season’s crop.
The South African sugar operations, including various downstream activities, produced an operating profit of R211-million.
The local market experienced a period of high sugar imports while there was a gap in duty protection, which has subsequently been resolved.
Operating profit for the Zimbabwe sugar operations increased to R358-million, while the operating profit for Tongaat’s Mozambique operations improved to R232-million.
The Mozambique business benefited from the appropriate level of protection against imports in the local market, improved sugar distribution and availability in more remote areas. At the same time, there was pressure on local sales due to the tighter general economic conditions.
Tongaat noted that weather and growing conditions over the previous two years had masked the substantial progress being made with intensive agricultural improvement programmes, increased hectares under cane, irrigation efficiencies and power reliability.
The existing sugar cane footprint, the agricultural improvement programmes and the completion of new planting partnership initiatives that are currently under way are likely to result in future production of more than 1.6-million tons of sugar, given regular growing conditions.
This compares with the 1.06-million tons of sugar produced in the previous financial year.
Tongaat plans to continue initiating all cane-related opportunities so that is is eventually able to fully use its two-million-ton-a-year installed milling capacity.
Meanwhile, Staude noted that Tongaat’s starch operations experienced the carry-over effect, into the first half of the year, of maize costs at import parity as a result of the previous season’s drought, concurrently with lower co-product revenues.
The second six months of the current financial year will see an improvement in operating margins as the starch operation benefits from maize prices closer to export parity levels following the record maize harvest of 16.7-million tons in the 2017/18 season.
The growth in sales volumes experienced in the first half of the year is expected to accelerate in the second half of the year, supported by the replacement of imported contracts with local production, improving local market demand, new market development and export market growth, all of which are benefiting from the lower maize prices.
The combination of the improved volume and margin outlook with the ongoing focus on costs and operating efficiencies is expected to result in a considerable improvement in operating profit for the starch operations for the second half of the financial year.
Overall, Tongaat is positive about the outlook for the 2017/18 full year and into 2018/19, with earnings growth and cash flow momentum expected.
“Tongaat Hulett is poised for a positive earnings and cash flow period ahead, with its well positioned asset base, and benefiting from the multiple strategic actions completed to date and ongoing,” Staude noted.