Engineering News

Agricultural and agroprocessing group Tongaat Hulett CEO Peter Staude says he is “encouraged” by the Zimbabwe government’s swift response to the recent illegal land invasions of its sugar cane estates in Chiredzi, which earlier this month saw “hundreds” of local villagers forcibly occupy land owned by the group’s Hippo Valley Estates and Triangle Sugar subsidiaries.

Speaking to Engineering News Online on Monday, Staude said there had been “decisive” action on the part of the authorities to remove the land invaders, which was amplified by public statements of support by Lands and Rural Resettlement Minister Douglas Mombeshora.

"We do not allow that. This is why police have moved in quickly to put an end to the invasions," Reuters quoted Mombeshora as saying at the time.

The Tongaat Hulett head on Monday confirmed that the illegal settlers had since been removed from the land, with some having already appeared in court and receiving $25 fines.

Asked if the land evasions had dampened the group’s appetite for Zimbabwe, which had, in recent years, been beleaguered by concerns over land security, Straude said the result was quite the opposite.

“We’ve been very encouraged by the reaction of the authorities. The [land invaders] are off the land now and the operations weren’t affected. We work very well together with government and local communities on the socioeconomic issues in the area. A fine of $25 for people who haven’t got [much] money is a fair sum,” he remarked.

STRIKE NOTICE

While the Johannesburg-listed sugar producer appeared to have avoided land troubles north of the border, it now faced headwinds at home, where some 5 500 South African sugar sector workers were threatening to strike from Tuesday should their wage increase demand of 11% not be met.

Tongaat Hulett, along with industry peers, were offering an industry-wide 8.5% wage uptick.

“We’re still under strike notice at the moment, so its premature to say the strike is definitely going ahead. We are meeting with [labour representatives] throughout the course of the day, so there’s a chance that the strike won’t go ahead,” commented Staude.

ENHANCED LOCAL MARKET PROTECTION

Meanwhile, recently instituted measures in Zimbabwe and South Africa aimed at protecting the local sugar markets against “unfair” import competition had already begun to yield benefits, he noted.

Last month, the sugar industry in South Africa saw an upliftment of the dollar-based reference price from $0.15/lb to $0.25/lb, while Zimbabwe in March introduced import duties on sugar of 10% plus, about $0.6/lb.

“As a result, in May and June we saw a huge drop off in imports – it was very clear in the numbers. There is still, however, a problem with the dollar-based pricing mechanism and that conversation still needs to continue [with government].” said Staude.

SOURING SUGAR PRICE

His comments came as the group revealed in its results statement for the year ended March 31 that operating profit from its various sugar operations totalled R908-million – a significant slump from the prior year’s R1.4-billion – as the world sugar price hit its lowest level in “many” years.

The company said it lost substantial local market sales as a result of inadequate protection during this period of world surplus, leading to increased export volumes.

Exports from Zimbabwe and Mozambique to the European Union averaged some $0.8/lb lower than the levels in the last two years.

Tongaat Hulett’s total sugar production for the year grew by 170 000 t to 1.4-million tons, compared with the low point of one-million tons in 2010/11.

South Africa produced 634 000 t, Mozambique 249 000 t, Swaziland 53 000 t of raw sugar equivalent and Zimbabwe produced 488 000 t of sugar over the period.

“The South African sugar operations, including the agriculture, milling, refining and various downstream activities recorded operating profit of R340-million. The benefit of substantial growth in sugar production was partially offset by the pressure on revenue of lower local market volumes and net prices as a result of import competition, lower export prices and the reduced benefit of cane valuations compared with the prior year,” the group noted.

LAND CONVERSION

Meanwhile, the sugar company’s land conversion activities generated operating profit of R1.08-billion from sales of 259 developable hectares over the period, with a further 8 200 developable hectares still available and earmarked for development.

In the past year, 63 developable hectares were sold at an average profit of some R7.6-million for every developable hectare in the KwaZulu-Natal-based Umhlanga Ridgeside, Izinga/Kindlewood and Cornubia industrial and business areas.

The sale of a precinct of six developable hectares to a single developer in Umhlanga Ridge town centre that would yield some 1 500 affordable rental homes was also concluded, representing profit of R24-million a developable hectare.

In addition, last year had seen two transactions for the sale of 190 developable hectares to Dube TradePort for R2.4-million a hectare, which, while not yet shovel ready, adjoined the international airport and was of “strategic importance” to the KwaZulu-Natal provincial government’s medium-term growth plans.

“We will continue to work together with government and related organisations to capture the synergy of each other’s unique capabilities and to increase the value for all stakeholders that can be derived from the region between Durban and Ballito,” the company stated,

STARCH BUSINESS

Tongaat Hulett’s starch operation, meanwhile, grew operating profit to R482-million from R388-million in 2013.

Starch and glucose processing margins benefitted from local maize that was competitive with international prices, favourable exchange rates and good coproduct realisations.

Total sales volumes grew by 4%, driven by increased exports and growth in the coffee and creamer sectors, which offset declines in other local sectors.

DIVIDEND DECLARATION

Overall, group operating cash flow for the year improved by R750-million to R2.93-billion before working capital.

Net cash flow for the year, after dividends, was R300-million, while net debt at the end of the year settled at R4.32-billion, which was lower than the last two years.

Total net profit before the deduction of minority interests was R1.2-billion, while headline earnings attributable to Tongaat Hulett shareholders amounted to R1.1-billion compared with R1.06-billion last year.

A final dividend of 210c a share was declared, bringing the yearly dividend to 360c a share.

PROSPECTS

Staude said on Monday that earnings were expected to increase in the full year ahead, driven by continuing growth in operating profit and cash flow.

Sugar prices were expected to stabilise following a period of unsustainably low international prices, owing to two seasons of “exceptionally” good weather conditions for sugar cane growing globally, high stock levels and low government-controlled ethanol prices in Brazil.

“At present, the European Union market position seems to have stabilised at the current lower levels, in anticipation of reform in 2017, while the recently instituted measures in Zimbabwe to protect the local market against unfair import competition are expected to yield benefits. South Africa will benefit from the recently increased reference price used in the import duty calculation, particularly if the exchange rate remains at current levels,” Staude asserted.

He believed the starch operations were well positioned to continue to perform strongly, as the latest maize crop estimates were for a larger crop and competitive maize costs were expected.

“The business is in a good position to benefit from multiple actions taken across a wide front, with its footprint in six Southern African Development Community countries, its ability to process both sugar cane and maize, renewable-energy opportunities and increased momentum in land conversion,” Staude concluded.