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Manufacturing Indaba 2018

Sweet windfall for Illovo and Tongaat Hulett

Sugar companies Illovo and Tongaat Hulett rebounded from last season's drought-depressed performance by posting better profits for the six months to September, primarily driven by sugar production.
Illovo's attributable profit for the six months was 29% higher than a year ago at R778m; Tongaat Hulett's was 30% up at R655m.

Illovo's revenue increased 25% to R5,1bn, benefiting from sugar sales volume growth of 10%, as well as improved selling prices.

Cane production increased 10% to 10,9Mt following excellent rainfall in South Africa and with improvement programmes in other African countries in the prior year now showing results.

Illovo managing director Graham Clark says a record volume of cane production is expected for the full year to March.

Operations in Malawi (43%) and Zambia (23%) now account for two-thirds of the group's profit and Clark says he expects this to continue for the foreseeable future. "The two countries are ideal for cane growing, with high efficiency and cane levels and they are well positioned in relation to markets," he says.

South Africa contributed just 12% to profit in the six months but Clark says it is still "very important" to the group. "We are working hard to grow cane supply in South Africa, converting land from timber and planting new cane in existing areas."

The group's mill in Umzimkulu near Port Shepstone, which was forced to close during the drought, recommenced crushing this season.

Clark says the group's four South African factories have "operated at high levels of efficiency", with pleasing performances coming from the two mills in Malawi. Expanded facilities in Zambia and Mozambique are operating close to capacity, he says.

Sugar production for the full financial year is likely to be 10%-15% higher than last year's, driven by an increase in South Africa as normal production resumes.

Tongaat Hulett's Zimbabwean operation accounts for a third of its profit.

The group is facing a trying time in that country because of the 51% local ownership demanded by its "indigenisation" policy. It risks being evicted if it does not comply before a looming deadline set by the government.

Tongaat Hulett's managing director Peter Staude skirts this discussion, preferring to outline the company's importance to Zimbabwe as the biggest private-sector employer.

"It remains an empowerment story well understood by many and rapidly developing," says Staude.

The company says it employs 18,000 people in Zimbabwe. It has developed 670 farmers on more than 11,000ha who employ 5,550 people. They supply the company with 772,000t of cane, generating US$50m a year.

"A further 600 farmers on 12,700ha could supply an additional 1,4Mt of cane a year," the company says. It calculates that these farmers could in total earn US$150m a year and employ upwards of 12,000 people.

"Dialogue is maintained with key stakeholders including the appropriate authorities at the highest levels to ensure a full understanding of all the relevant dynamics and issues," the company says.

In South Africa the company sold 40 developable hectares - a small portion of its 8,500ha holdings - enhancing profits from operations by R244m through its conversion and development division.

An analyst says though Tongaat Hulett's land holdings look attractive, the Zimbabwe indigenisation issue "hangs like a black cloud over the company".

A settlement is expected soon, he says, with the company walking a tightrope between shareholders and needing to "appease" the Zimbabwe government.

Though sugar volumes of both companies have increased, they are "not as rosy as was expected".

In addition the analyst says the companies face transport and weather issues across their operations, with currencies also playing havoc with earnings. "International sugar prices are also under pressure and are trading off the highs they were at earlier," the analyst said.

Source: Financial Mail via I-Net Bridge


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