Despite a record year, Tongaat Hulett’s starch and cellulose division was impacted by load-shedding during the year ended March 31, CEO Peter Staude said in a telephone interview on Monday.

“The starch and glucose operation, which is the only wet-miller in sub-Saharan Africa, was well positioned strategically, while being focused on growing its sales volume, with an enhanced product mix and customer growth prospects into Africa,” the company advised in a statement.

However, dry weather conditions in the new season had resulted in maize prices trading above international levels. The starch operation's current exposure to these higher prices comprises about 15% of the coming year’s maize requirements.

Therefore, the future success of the starch and glucose operation was underpinned by improving the use of its available capacity and the efficiency of its operations.

During the year under review, the starch operation increased its operating profit to R561-million from R482-million reported in the prior financial year, with improvements in the sales mix, coproduct recoveries, capacity use and plant efficiencies.

“Domestic sales volumes grew by 4%, with increases in the coffee/creamer, confectionary and paper making sectors. Working together with customers, success has been achieved in increasing sales of products where demand is growing – locally and exporting into the rest of Africa – and recovering local market from imports,” Tongaat Hulett noted, adding that starch and glucose processing margins were in line with the year ended March 31, 2014.

“We would have done even better if there wasn’t any load-shedding,” he advised.

Staude told Engingeering News Online that the company, which was currently producing electricity through cogeneration at its sugar mills, was keen to participate in the Department of Energy’s potential cogeneration bidding process to generate power for the national grid, the announcement of which was expected soon.

According to its website, the sugar producer was able to cogenerate electricity for the national grid of about 9 MW at the Felixton, Amatikulu and Maidstone mills.

Staude said every sugar mill generated its own power and could, typically, “if it is a major investment”, generate 80 MW.

Felixton and Amatikulu had historically supplied State-owned power utility Eskom directly, but since the start of the 2005 season had been supplying Amatola Green Power. Maidstone had previously supplied the eThekwini municipality, in KwaZulu-Natal.

ZIM VS SOUTH AFRICA
Tongaat Hulett reported an operating profit of R806-million, of which its Zimbabwe operations contributed R386-million compared with South Africa’s R261-million, for the year ended March 31.

The two countries were neck-and-neck in 2014 period contributing R330-million and R340-million respectively. 

The South African sugar operations, including agriculture, milling, refining and various downstream activities, previously increased sugar production  substantially to 634 000 t. But, during the period under review, sugar production reduced to 541 000 t, owing to low rainfall in KwaZulu-Natal during the season.

With regard to Zimababwe, Tongaat Hulett explained that local market sales volumes recovered significantly, with improved local market protection (tariffs and import licences) implemented earlier in the year and progress being made with distribution and marketing initiatives. “The local market remains suppressed by the macroeconomic conditions,” the company noted.

Further, the conversion of US dollar profits into rands on consolidation was positively impacted by exchange rate movements. “The cost of bought-in goods and services, salaries and wages was $11-million lower than the prior year and $51-million lower than two years’ ago, after absorbing input price, salary and wage increases,” Tongaat Hulett stated.

However, South Africa was hit by dry conditions, the impact of which had been partially mitigated by 11 554 ha of new cane developments that were harvested for the first time this year. However, local sales were below prior years, with various pressures in the market.

“Cost reduction actions had limited the cost of goods, services, transport, marketing, salaries and wages to an increase of 4% this year,” Tongaat Hulett advised.

Tongaat Hulett said the crop size in the coming season in South Africa was uncertain and was likely to be at the lowest level for many years, while Zimbabwe and Mozambique were likely to show modest growth in sugar production.

Mozambique recorded an operating profit of R130-million, down on the R168-million reported in the previous financial year, with sugar production increasing to 271 000 t from 249 000 t.

Additional sugar improrts significantly impacted on the Mozambique market, necessitating increased exports by local producers at lower prices, with Tongaat Hulett reporting a negative profit impact of R77-million as a result.

The cost of goods and services, salaries and wages was lower than two years’ ago, equating to some R58-million lower, after the company absorbed price increases and substantial salary and wage increases.

In Swaziland, sugar operations achieved an operating profit of R29-million compared with R70-million in the 2014 financial year. This was owing to the lower sucrose price as export prices into the European Union were reduced. The Swaziland estates produced the raw sugar equivalent of 57 000 t, up on the 53 000 t reported for the 2014 financial year.

Overall, Tongaat Hulett pointed out that good progress continued to be made in growing the number of hectares under cane and expected that by 2018/19 an additional 22 800 ha would be harvested, of which 9 074 ha had already been planted.

“Agricultural improvement programmes aimed at improving yields and sucrose content are proceeding well. Tongaat Hulett has more than 2.1-million tons of sugar milling capacity. Sugar production is targeted to grow from the 1.314-million tons in 2014/15 to some 1.821-million tons in 2018/19, under normal weather conditions.

“Of this growth, 37% is expected to come from a return to normal weather conditions, 30% from additional hectares under cane and 33% from yield and sugar extraction improvements,” the company outlined.

OTHER FINANCIALS
Cash flow from operations improved by about R360-million, generating R2.533-billion compared with the prior year’s R2.173-billion, with reduced cash absorption in working capital. Net debt at the end of the year reduced to R3.992-billion with a R419-million positive cash flow after dividend payments.

Total net profit before the deduction of minority interests was R1.047-billion on R1.227-billion recorded in financial year 2014. Headline earnings attributable to Tongaat Hulett shareholders amounted to R945-million compared with R1.106-billion last year. A final dividend of 210c a share had been declared, bringing the annual dividend to 380c a share compared with 360c a share in the prior year.