How di­ver­si­fy­ing is work­ing for the sugar in­dus­try

Finweek English Edition - - IN THE NEWS - BY BUHLE ND­WENI

The sugar-pro­duc­ing busi­ness is cycli­cal by na­ture, as il­lus­trated by the im­pact of a drought on the re­cent re­sults from Ton­gaat Hulett and Illovo Sugar, the gi­ants of the lo­cal in­dus­try.

Both com­pa­nies have worked hard in re­cent years to di­ver­sify their busi­nesses, in­clud­ing into down­stream op­er­a­tions such as ethanol and fur­fural pro­duc­tion, elec­tric­ity co-gen­er­a­tion and, in the case of Ton­gaat, starch op­er­a­tions and prop­erty devel­op­ment.

They have also di­ver­si­fied ge­o­graph­i­cally. Ton­gaat, with a mar­ket cap­i­tal­i­sa­tion of R17.5bn, has op­er­a­tions in Swazi­land, Mozam­bique and Zim­babwe. Its smaller ri­val Illovo, with a mar­ket cap­i­tal­i­sa­tion of R8.1bn, has op­er­a­tions in Malawi, Zam­bia, South Africa, Tan­za­nia, Swazi­land and Mozam­bique.

Illovo sees it­self as “more than just a sugar com­pany” and down­stream op­er­a­tions con­trib­uted 16% to prof it in 2015, says Dirk van Vlaan­deren, in­vest­ment an­a­lyst at Kag­iso As­set Man­age­ment. “They have a tar­get to in­crease this to 20% medium term, hav­ing suc­cess­fully com­mis­sioned an ethanol dis­tillery in Tan­za­nia in 2014, and have plans for a sim­i­lar project in Zam­bia and a fur­fural plant in Swazi­land. We be­lieve this will add a bit more sta­bil­ity to the earn­ings pro­file of the group once com­pleted.”

Ton­gaat’s land devel­op­ment projects and starch op­er­a­tion al­ready con­trib­ute the bulk of its prof­its (63% of op­er­at­ing profit in the year to end March). Over­all, the group re­ported a 14.6% de­crease in head­line earn­ings to R945m in the lat­est fi­nan­cial year, in part due to the im­pact of the drought. Illovo saw its head­line earn­ings per share decline by 7.7%.


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