JSE-listed sugar manufacturer Tongaat Hulett says it felt the pressure from a challenging commercial environment faced by the South African sugar operations during the last quarter of its financial year ended March 31.
Tongaat expects earnings a share for the year under review to be at least 120% lower than the R17.94 earnings per share posted for the prior financial year.
The group further expects to report a 9% reduction in overall sugar production year-on-year, which, together with a high proportion of fixed costs applicable to sugar production, will be a drag on profitability.
Profitability has also been impacted by higher costs for commodities, maintenance and labour.
Tongaat had previously warned of difficult trading conditions for the financial year under review, as it continued to advance a turnaround strategy. It was also negatively impacted by the civil unrest and violence that broke out in July last year.
The unrest led to a loss of milling capacity and interrelated operational challenges thereafter.
The South African sugar operations are expected to report a loss for the financial year, on the back of the production decline from 535 000 t in the 2021 financial year to 463 000 t in the 2022 financial year.
In Zimbabwe, local market sugar sales continued to grow year-on-year, however, hyperinflation and the dynamics between official and unofficial exchange rates contributed to a higher proportion of sales being concluded in Zimbabwe dollars rather than US dollars.
The company reports that export proceeds also declined owing to lower sugar production and import restrictions into the Kenyan market.
The Mozambique sugar operations delivered solid results with higher revenue arising from favourable commercial conditions, including strong local demand, higher refined sugar sales and improved export realisations.
Sales at Tongaat’s sugar packing operation in Botswana were negatively impacted by aggressive pricing by competitors on the back of cheaper sugar imports entering the country.
Meanwhile, the company reports that the property market in KwaZulu-Natal remains subdued owing to the July 2021 civil unrest, as well as a prolonged Covid-19 impact on specific property sectors.
Commenting on the flash flooding experienced earlier in April in the province, Tongaat says it is still assessing the impact of the storms on its operations, but can confirm that there has not been significant damage to sugar milling infrastructure.
The sugar mills have been shut since last week and production will only resume once farmers are able to access waterlogged fields to harvest cane.
While a big part of Tongaat’s turnaround strategy involves paying down debt, the company had to increase borrowings in the year under review to R6.8-billion, compared with R5.8-billion as at March 31, 2021.
The company says its South African business’ cash flow performance in the 2022 financial year was considerably worse than what had been forecast when debt refinancing was concluded in December 2021.
The company will release its results on or about June 30.