Land sweetens pot for Tongaat Hulett as sugar crop feels drought
A NEW city is being built on sugar-cane land along a stretch of the N2 highway in KwaZulu-Natal.
Most of the land belongs to sugar giant Tongaat Hulett, which, over the years, has aggressively grown its land development portfolio.
In the year to end-March, the agriculture and agri-processing company generated R1.115-billion of profit from the sale of 121 developable hectares of land, an increase from R829-million from a sale of 108ha last year.
Against the backdrop of severe drought in KwaZulu-Natal, the company’s sugar operation profit fell to R124-million from R806-million the year before. Sugar volumes fell 291 000 tons to 1.023 million tons from 1.3 million tons in 2015.
However, according to CEO Peter Staude, these financial results do not mean that Tongaat Hulett has become a land development company.
“At the moment, the property development business has been quite lucrative, but when you look at our sugar business, it could become extremely lucrative in future,” he said this week.
This year, Tongaat Hulett’s sugar operation had its worst financial performance since 2004 — and a record performance in its land-conversion portfolio.
“You might be tempted to say that we are a land developer company, but we are not. That is just from the financial results point of view.
“There is potential in our sugar business to make a profit for shareholders more substantial,” said Staude.
Ron Klipin, portfolio manager at Cratos Wealth, concurred: “The company is still a sugar company, steeped in history with roots going way back.”
However, urbanisation resulting in land conversion and large-scale development had changed the complexion of Tongaat Hulett, said Klipin.
According to the group’s “Land for Conversion” document, Tongaat Hulett has an unequalled portfolio of 8 026 developable hectares of land in prime locations in KwaZulu-Natal. Key drivers creating demand for this land include the housing, office and retail and industrial markets.
The emphasis of these activities is on 3 736 developable hectares, from which sales are expected to come within five years, the document states.
Dirk van Vlaanderen, an investment analyst at Kagiso Asset Management, said: “Tongaat’s year-end results highlight the benefits of diversification to the company’s portfolio of businesses, with another good year from its starches and land businesses offsetting a much weaker sugar performance.”
In the last reported financial year, land-conversion profits of R1.1-billion contributed 62% of the group’s operating profit, mainly due to the weak performance from sugar in the year, he said.
“Over the past 10 years, land conversion profits have averaged around 34% of Tongaat’s group operating profit, with the past three years seeing good land-conversion profits of between R800-million and R1-billion per annum, which is anything between 35% and 62% of the group’s profit.”
Current non-sugar contribution to profit was about 61%, Klipin said.
“Over the years we have seen massive urbanisation, which is not only happening in Durban but globally. In 2026, about 60% of the world’s population will not just live in cities, they will live in big cities,” said Staude.
He said the group did not just wake up and start a land conversion portfolio — “the city grew into the sugar-cane fields and we cannot stop that from happening”.
From the 121ha of land sold during the current reporting year, a high-intensity urban mixed-use and a high-end residential development in Umhlanga Ridgeside will be built. Another parcel of land will go into industrial and office use for Cornubia as well as Umhlanga Ridge Town centre, among other uses.
Because Tongaat Hulett’s land is predominately in areas deemed agricultural in terms of the Subdivision of Agricultural Land Act 70 of 1970, it must be formally released from this status to be developed for nonagricultural purposes.
Demand has also been supported by the government’s strategic and spatial plans.
“It is a classical case where government and the private sector work together to unlock investment opportunities,” said Staude.
Van Vlaanderen said the timing and value realisation of Tongaat’s vast land portfolio was likely to be uneven as the company sought to obtain the best possible value for its portfolio rather than rush through sales at less favourable pricing.
Cobus Oelofse, CEO of Ilembe Chamber of Commerce, Industry and Tourism, said: “As longterm sugar-cane farm leases expire, tracts of land are becoming available for development, with Tongaat Hulett Development being a significant driver, among other developers.”
Oelofse predicted that the stretch along the N2 Northern Corridor would look like the Johannesburg-Pretoria corridor in Gauteng. “Commercial development in Ballito has also mushroomed significantly. It is gratifying to witness this change, and, most importantly, the economic contribution thereof.”