Tongaat-Hulett cashes in on African growth

Sugar producer Tongaat-Hulett saw its nett profit for the first six months of the year until the end of September rise to R597 million.

Sugar producer Tongaat-Hulett saw its nett profit for the first six months of the year until the end of September rise to R597 million. This is 8,2% up on the same half year in 2010.

“Most of the profits came from Tongaat-Hulett’s operations in Mozambique and Zimbabwe,” said Adrian Zetler, equity analyst at Coronation Fund Managers. He added that this will increase going forward, as Tongaat ramps up its operations in the two countries.

Mozambican operations contributed more than a quarter of the company’s total profit from operations for the half year. Tongaat’s sugar operation in Mozambique will increase sugar production by 45% to 240 000t for the current financial year, Tongaat-Hulett chief executive Peter Staude said in a statement.

Staude said the Zimbabwe operations had contributed R364 million to the half year profits from operations, and will increase sugar production by 10% to 365 000t. However, these positive production outlooks aren’t reflecting in Tongaat’s share price, which declined by more than 14% over the last 12 months.

“Tongaat-Hulett is a turnaround story,” explained Zetler. “It currently utilises only around half of its sugar production capacity. Investors naturally see a lot of risk in it trying to increase its sugar production back to full capacity, given that production volumes have been in a structural decline for so many years.”

According to Staude’s statement, the company expects local farmers to deliver enough cane to produce 490 000t of sugar.
Going forward, Zetler said there are three ways Tongaat-Hulett can increase its local production. “Firstly, it can grow more cane on its own land. Secondly, it can develop more black farmers to increase their production. Thirdly, it can gain back sugar cane from commercial farmers that supply to other sugar millers.”

Staude has the same strategy in mind. He added that Tongaat-Hulett could increase its influence in cane development by leasing additional land, and collaborating with government to rehabilitate cane supply on its land as well as on land reform farms that have gone out of cane. – Jaco Visser