Commentary by Peter Staude, CEO of Tongaat Hulett:
Tongaat Hulett’s total sugar production for the 2011/12 year is expected to increase by some 14% to 1,150 million tons. More than 80% of the season’s cane had been milled by the end of October 2011. Sugar production for the year in
Revenue for the six months to 30 September 2011 of R6,027 billion was 27,6% above the R4,724 billion for the corresponding period in 2010. Profit from operations grew to R1,047 billion (2010: R963 million). Excluding the R130 million gain in the prior period in respect of the pension fund employer surplus account allocation, the increase in profit from operations is 25,7%.
Profit from the
Operating profit in the South African agriculture, sugar milling and refining operations for the half-year was R54 million (2010: R47 million). The gap between the hectares under cane and the hectares milled is unusually large as a result of the substantial cane root planting following last year’s drought and the approximate 15 months required to first harvest. The lower tonnage being available for export from the industry has meant that revenue was driven mainly from the local market where price increases were in line with cost increases. Tongaat Hulett’s share of industry production this year is expected to increase from 23% to approximately 26%. Annual raw sugar production is projected to increase by about 8% to approximately 490 000 tons in the current season.
The various downstream sugar value added activities recorded profit of R142 million (2010: R136 million). The Voermol animal feeds operation experienced lower sales volumes and pressure on margins as a result of raw material availability constraints, high winter rainfall leading to a reduced requirement by farmers for feed and reduced on-farm feeding with higher maize prices.
In the land conversion and development activities, the appropriate sales strategies (bulk sale, partnership or own development) are constantly reviewed for each land holding and implemented as appropriate. Opportunistic offers for some semi-bulk land sales were received and turned down as they did not meet Tongaat Hulett’s value criteria. Revenue for the six months to September 2011 was generated mainly from 13 developable hectares (15 gross hectares) that were sold in the Umhlanga Ridge Town Centre, Zimbali and Izinga areas. Operating profit amounted to R62 million (2010: R97 million) with a further R3 million in capital profits (2010: R4 million) being realised.
Profit from the starch operations increased to R167 million, compared to R125 million in the same period last year. Improved co-product recoveries and local maize costs that were contracted below Chicago (CBOT) prices resulted in an improvement in starch and glucose processing margins. Sales volumes in the local market were 0,5% above last year.
Finance costs increased to R249 million from R231 million in the first half of the 2010/11 year and are commensurate with the level of borrowings.
Operating cash flow, before working capital, improved by R626 million to R1,555 billion for the half-year, mainly as a result of the higher sugar production and sales in the half-year to September 2011. This follows the previous absorption of cash in the various expansion and sugar cane establishment programs. The September half-year coincides with a high working capital absorption point in the year, particularly in the South African sugar industry, with large cane payments having been made and sugar stock levels having increased. There was a net cash outflow for the period, after dividends, of R253 million. Tongaat Hulett’s net debt at the end of September 2011 was R4,278 billion. A process to replace a portion of the short-term debt with long-term debt is close to being concluded.
Total net profit was R597 million (2010: R552 million). Headline earnings were R501 million for the half-year ended 30 September 2011, compared to the R507 million earned in the six months to 30 September 2010, after taking into account the minority shareholders’ interests in respect of increased profits at the sugar milling operations in Mozambique and at Hippo Valley in Zimbabwe.
The Board has declared an interim dividend of 120 cents per share (2010: 110 cents per share).
One of Tongaat Hulett’s key objectives is to facilitate increased cane supply (including hectares under cane, yields and cane quality) to its mills so as to fully utilise its existing installed milling capacity of some 2 million tons of sugar with a simultaneous reduction in unit costs. This would lead to a 75% increase in sugar production over the 1,150 million tons expected in the 2011/12 season.
Sugar production in
The strategy to increase cane supply in
The future revenue stream would benefit significantly from electricity and ethanol developments. Tongaat Hulett continues to interface with Government towards establishing an appropriate regulatory framework for both electricity generation and ethanol production from sugar cane.
Tongaat Hulett owns a total of some 8 600 developable hectares (13 639 gross hectares) for development in
The outlook for the 2011/12 year remains in line with that previously communicated. Tongaat Hulett’s financial results remain sensitive to movements in exchange rates, which impact particularly on export realisations and the conversion of profits from
Chief Executive Officer
Tongaat Hulett is an independent agricultural and agri-processing business which includes integrated components of land management and property development. Through its sugar and starch operations, Tongaat Hulett produces a range of refined carbohydrate products from sugar cane and maize. The business has considerable expertise in downstream agricultural products, biofuel production and electricity generation. Tongaat Hulett balances the operational requirement for cane supplies to its sugar cane processing operations with the transition of agricultural land to other uses at the appropriate times. The energy-food-water nexus is an evolving dynamic, presenting opportunities. Tongaat Hulett is well placed to capitalise on emerging opportunities for expansion and growth in
14 November 2011