Agricultural and agroprocessing group Tongaat Hulett’s operating profit for the half-year ended September 30, increased 7% to R1.4-billion, following record performances from the group’s land conversion business and its starch operations, and despite pricing and import pressures on its sugar business.

Total net profit before the deduction of minority interests was R764-million for the half-year, while headline earnings attributable to shareholders remained flat at R663-million.

An interim dividend of 150c a share was declared in the form of a scrip distribution with a cash alternative.

Increased revenue of R7.8-billion largely reflected improved margins from the land conversion and developments business, which generated sales from 174 developable hectares, as well as the starch operation, which benefited from competitive maize costs and favourable co-product realisations.

The starch operation grew its operating profit, from R147-million in the first half of the previous financial year, to R232-million in the six months under review, as starch and glucose processing margins were favourably influenced by exchange rates and local maize costs, which remained on par with international prices.

Total sales volumes for starch grew 5%, driven by increased exports and growth in the coffee creamer and alcoholic beverage sectors, which offset declines in other local sectors.

Meanwhile, Tongaat Hulett lifted profit in its land conversion and developments business from R246-million in the first half of the previous financial year to R512-million in the six months under review, selling 174 ha of land for development.

A large portion of this was attributable to the sale of 151 ha of land north of Durban, to the Dube TradePort for R350-million.

“Moreover, sales in the Umhlanga area featured a transaction with the highest price, thus far, per square metre, equating to net cash profit of R34-million per developable hectare in Umhlanga Ridgeside,” said the group.

INTERNATIONAL, DOMESTIC SUGAR PRESSURES

The group’s sugar operations experienced pressures from significantly lower international sugar prices over the six months, particularly for exports into the European Union, as well as from increased imports into Southern African markets, which adversely impacted on both revenue earned and the valuation of standing cane.

Operating profit in the first half of the year from the various sugar operations declined, from R967-million in the first half of the prior year, to R684-million in the six months ended September 30.

The global market experienced a period of unsustainably low international prices over the half-year, following two seasons of “exceptionally” good weather conditions for sugar cane growing globally.

“Downward pressure on sugar prices is being experienced internationally and, in real terms, the world sugar price has been at its lowest level in many years. In addition, in regional markets, local market sales are being lost to imports as a result of the current low world price, leading to increased export volumes at lower prices,” CEO Peter Staude told Engineering News Online.

The pricing pressures added impetus to the group’s drive to reduce sugar production costs, with substantial reductions being achieved in the current season, and unit costs of production benefiting further from volume growth.

Despite the market challenges, Tongaat Hulett’s overall sugar production would continue to increase this season and was expected to be at its highest level in ten years.

PROSPECTS

Looking ahead, Staude held that Tongaat Hulett was in a good position to benefit from multiple actions taken across a wide front, including its ability to process sugar cane and maize and its increased momentum in land conversion.

The group’s starch operation was currently “well-positioned”, with the majority of its maize priced for the current year and margins expected to remain at levels in line with those achieved in the last year.

“New season maize prices are trading close to international prices and starch and glucose volumes are expected to show growth, with local market demand being driven by increased volumes in the coffee creamer and alcoholic beverage sectors and good growth in export volumes,” he commented.

Staude added that the group would continue to build on its progress to accelerate land conversion, and was targeting a further 8 300 ha for development.

“The next two-year period should be rewarding in unlocking value from Tongaat Hulett’s land-holdings. Currently, active developments available for sale total 467 developable hectares, which is three times the level that existed in 2005. These should realise net cash profits in excess of R3-billion,” he said.