Tongaat Hulett profit slumps
Earnings from traditional sugar business down by more than a third
Tongaat Hulett, the sugar group that has been in existence for 170 years, is looking to property development to offset a drop in its traditional business.
Tongaat Hulett, the sugar group that has been in existence for 170 years, is looking to property development to offset a drop in its traditional business.
CEO Peter Staude says land and property development now makes up 34% of the company’s operating profit.
The latest financial results showed income from sugar fell more than a third, hit by falling prices on global markets and stronger currencies in markets in which it operates.
Tongaat Hulett expects strong cash inflows, mainly in the second half of the next financial year, when a “considerable number” of property transfers are registered.
In the meantime, group operating profit for the year ended March 2018 slumped 16.1% to R1.96bn, as headline earnings per share plunged 38%. Operating profits from sugar dropped to R837m from R1.27bn in 2017. The company cut its annual dividend in half to 160c per share in the period.
Staude said on Monday the government had not made “timeous” upward revisions to SA’s sugar import duty in the first half of calendar 2017 after the industry struggled with high volumes of imported sugar. “This was followed by a period during which zero duty was erroneously applied,” he said.
However, the group has 7,612 developable hectares of prime land near Durban and Ballito.
In years to come this will be converted from growing sugarcane to residential, commercial, industrial and retail projects, in a rich property-development zone that includes the King Shaka Airport and the Dube TradePort, one of two special economic zones in KwaZulu-Natal.
So far, 47%, or 3,566 developable hectares of company land, has been released from agricultural use after approvals by the government. Such activities would involve considerable cash inflows and outflows over an extended period that might not coincide with financial year reporting, the group said.
“Sugar production reflected a partial recovery from the drought conditions of the previous two seasons,” Staude said.
Future ethanol production in SA “looked particularly promising”, including for electricity generation, he said.
Operating profit of R86m in the core South African sugar operations, including downstream activities, plunged from R390m in financial 2017.
However, Tongaat Hulett’s Voermol animal feeds operation performed well, while operating profit from the starch and glucose business improved in the second half of the year on more competitive maize costs.
Tongaat Hulett has cane growing, sugar-milling and refining operations in SA, Mozambique, Zimbabwe and Swaziland. Sugar production milling capacity of 2-million tonnes a year benefits from regional trade agreements and growth in sugar consumption.