Not so sweet

Finweek English Edition - - COMPANIES & MARKETS - SHAUN HAR­RIS shaunhar­ris@ya­hoo.com

AS A VER­TI­CALLY in­te­grated sugar pro­ducer Ton­gaat Hulett (TH) does vir­tu­ally ev­ery­thing but eat its prod­uct for you. It plants the cane, grows it, har­vests it, crushes it to ex­tract raw sugar and then re­fines that for the fi­nal prod­uct on the shelf. It would prob­a­bly like to eat the sugar for you if it could – lots of sugar.

Se­ri­ously though, it does speak some­where about the im­por­tance of sugar but only as part of a healthy diet. What TH needs to do is pump out as much sugar as it can. Apart from the lu­cra­tive mar­ket in South Africa, the global mar­ket is in that happy po­si­tion (for ex­porters) where de­mand ex­ceeds sup­ply, which ensures a strong ex­port price.

But there was lit­tle ic­ing on the top for TH in its 2011 an­nual re­port. The big prob­lem is that to get its in­te­grated model work­ing fully – and prof­itably – it needs to process as near to ca­pac­ity as pos­si­ble. TH can pro­duce around 2m t of sugar/ year. Only 445 000t were pro­duced in SA – as CE Peter Staude notes in his re­view, the low­est in many decades for TH. That knocked op­er­at­ing profit from its South African op­er­a­tions into a loss of R7m against a profit of R136m in its pre­vi­ous fi­nan­cial year.

The main prob­lem was near drought con­di­tions in SA’s sugar grow­ing sea­son, par­tic­u­larly in KwaZulu-Na­tal, where TH grows most of its cane. That shows the big risk with this busi­ness, and prob­a­bly any other agri­cul­tural busi­ness. A good crop de­pends on good rains (at the right time). If that doesn’t hap­pen there’s noth­ing you can do about it.

But not get­ting enough sugar through the sys­tem adds to TH’s woes. Milling and re­fin­ing are largely fixed costs op­er­a­tions. So Staude notes in the re­port the de­cline in sugar pro­duc­tion led to higher costs per ton of sugar pro­duced. Still, TH was able to ex­port 17% of sales, which earned it R3 272/t at the at­trac­tive world sugar price of US$18,5c/lb. In the pre­vi­ous year ex­ports were worth just more than R3 000/t.

The an­nual re­port ends on a more cheer­ful note, with TH record­ing in­creased land un­der cane, ex­pected bet­ter yields and im­proved sugar prices hav­ing in­creased the value for the crop at its 31 March 2011 year end. Maybe it’s not so tough be­ing a sugar baron.

There was lit­tle ic­ing

on the top for Ton­gaat Hulett

in its 2011 an­nual re­port

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