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Tongaat Hulett upbeat about future prospects, despite drought impact

14th November 2016

By: Anine Kilian

Contributing Editor Online

  

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The drought in Southern Africa has cut JSE-listed Tongaat Hulett’s sugar production in the current season by about 400 000 t.

Speaking to Engineering News Online, CEO Peter Staude pointed out that the company’s sugar production had decreased from 1.4-million tons a few years ago, to an expected one-million tons by the end of the current season.

“Once the drought is over and dam levels are full, we expect to produce 600 000 t more sugar than we are doing at the moment,” he added.

Irrigation has been reduced as a mitigation measure against poor rainfall and low dam levels in Zimbabwe, Mozambique and Swaziland.

The weather forecast for the coming summer in the key growing and catchment areas is for average to above-average rainfall.

“The recent encouraging rainfall in the coastal areas of KwaZulu-Natal is positive for the 2017/18 crop. The 2017/18 crop in Zimbabwe and Mozambique will [however] be impacted to some extent by the current reduced irrigation.”

Meanwhile, the company increased the revenue and operating profit generated from its sugar operations to R8.5-billion and R1.35-billion respectively in the six months to September 30.

Headline earnings of R631-million were reported, while operating cash flow was R1-billion, an increase from R266-million in the six months to September 30, 2015.

Tongaat Hulett reported an increase in the operating profit of its starch and glucose business to R306-million, compared with R281-million in the prior comparable period.

Land conversion and development activities, however, recorded operating profit of R269-million, down from R576-million last year.

Staude said that only 19 ha had been sold during the period. “Going forward, we expect that sales over a year will be 100 ha,” he said. 

Staude added that revenue, costs and profit recorded per developable hectare vary and are reflective of the degree of enhancement through urban planning, land-use integration and density, location and the intensity of infrastructure investment.

Meanwhile, the business benefited from a better sales mix, including replacing imports into the coffee creamer sector following the commissioning of a R135-million project at its Germiston starch facilities.

Overall volumes remained flat owing to muted domestic consumer demand.

OUTLOOK
Tongaat Hulett should continue to benefit substantially from improved local sugar market revenues as a result of improved import protection measures and better export revenues.

Starch and glucose volume growth for the remainder of the year is expected to remain subdued amid lower consumer spending. 

Further replacement of imported volumes is expected, particularly in the last quarter of the year.

The drought conditions have resulted in South Africa having to import maize for the current maize season with maize prices trading at import parity levels and expected to remain at these levels for the remainder of the year.

Lower co-product prices in the second half of the year are expected to result in margins that are below those achieved in the first half. Looking to the next maize season, improved planting intentions and a better rainfall outlook should see maize prices moving towards export parity levels.

Negotiations have started on 227 developable hectares, reflecting an increase in the number of substantial transaction opportunities, in various demand categories, following encouraging advancements in land conversion and development activities, boding well for near-term future sales.

“Overall, Tongaat Hulett’s profit for the full 2016/17 year will continue to be influenced by a number of substantial and varying dynamics, both positive and negative, and the full impact is difficult to predict at this stage,” Staude pointed out.
 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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