Sugar producer Tongaat Hulett has noted a 5.7% decline in half-year revenue for the 2015/16 sugar season.
The sugar season, which runs from April 1 to March 31 has been beleaguered by drought during the current season, which is due to end at the end of the month.
Tongaat Hulett CEO Peter Staude notes in the company’s interim results for the 2015/16 season, which was finalised in September 2015 and published in November, that land conversions and development activities have provided the KwaZulu-Natal company with a projected R5.76-million from the sale of 65 developable hectares. The company was only able to realise R4.35-million from 49 developable hectares during the 2014/15 season.
“The profit per developable hectare averaged R8.9-million in the half-year, ranging from R4-million to over R38-million for every developable hectare, in line with the expectations previously communicated,” Staude says.
The company has been involved in the development of Bridge City, a new town centre 17 km from the Durban city centre, bridging the communities of Phoenix and Inanda, and Ntuzuma and KwaMashu, and linking them into the urban system.
Bridge City is being developed as the second leg of the Effingham Development Joint Venture Public–Private Sector Partnership between the eThekwini Municipality and Tongaat Hulett. The first was the highly successful Riverhorse Valley Business Estate. However, while the latter is primarily industrial, with a single hospital, Bridge City is a mixed-use development.
Tongaat Hulett development executive Brian Ive notes that Tongaat Hulett is reinforcing its commitment to creating meaningful stakeholder value through the growth and development of entrepreneurs such as HZ Investments, which is headed by local entrepreneurs and property developers under the age of 23.
Along with land development, Tongaat Hulett has also boosted starch and glucose operations, which has increased operating profit to R281-million, an improvement of R264-million for the 2014/15 season. Staude notes that sales volumes of prime products reflected a 1% reduction in the half-year, with gains in the coffee and creamer sector and a slight increase in exports being offset by reductions in the confectionery, prepared foods, canning and paper- making sectors.
Staude notes that revenue from the company’s various sugar operations totalled R5-billion up to September, 14% below the previous half-year.
“Profit before the impact of cane valuations was R1.13-billion, compared with R1.45-billion in the first half of last year. The reduction in sugar production is being driven by poor growing conditions, particularly in South Africa. In addition to lower volumes, export revenues are also being impacted on by a lower international sugar price,” he notes.
He reiterates that, this season, cost reduction initiatives will continue across all operations, which includes overall reductions in real terms in goods, services, transport, marketing, salaries and wages.
“A number of factors are in play in the markets where Tongaat Hulett operates. We have cut the equivalent to some R950-million over the course of the previous four years. The key markets are the domestic markets in countries where it produces sugar, all of which have the potential to grow supply,”
While the drought has dogged sugar cane production in South Africa, lower dam levels have hampered irrigation at Tongaat Hulett’s operations in Mozambique, Zimbabwe and Swaziland.
“Total sugar production for the 2015/16 season is expected to be between 1.005-million tons and 1.09-million tons, whereas we produced 1.31-million tons in the previous season. We project 310 000 t to 325 000 t of the total to be produced in South Africa, while 410 000 t to 450 000 t will come from . . . Zimbabwe.”
He adds that Mozambique, with its Mafambisse and Xinavane mills, will produce between 230 000 t and 260 000 t in the season, while landlocked Swaziland mill will between 55 000 t and 58 000 t.
“The key markets are the domestic markets in countries where Tongaat Hulett produces sugar, all of which have the potential to grow our supply.”
Staude comments that the South Africa branch of Tongaat Hulett has had to procure other producers’ raw sugar for refining to supply its local white sugar market and plans to replace this with its own production in future.
He adds that the local sugar operations, including the agriculture, milling, refining and various downstream activities, have seen a reduction in operating profit to R154-million from R259-million in 2014. Production volumes are substantially below last year’s, as a result of the drought, which includes theDarnall mill not being opened this season as well as export sales volumes being reduced by 88%.
Staude speculates that production levels in 2016/17 will largely depend on the extent of rainfall over the next few months.
“The drought has already had an impact, particularly in South Africa. In Zimbabwe, Mozambique and Swaziland, the quantum of irrigation is being reduced as a mitigation measure against potential poor rainfall in the coming months. Electricity availability has, at times, impacted on irrigation in key areas as well.”
Staude concludes that a return to regular growing conditions, together with the benefit of the intensive agricultural improvement plans that are under way, should lead to sugar production increasing to above 1.6-million tons by 2018/19.