26 May 2014

  • Revenue of R15,716 billion (2013: R14,373 billion) +9
  • Operating profit of R2,374 billion (2013: R2,131 billion) +11
  • Operating cash flow of R2,934 billion (2013: R2,182 billion) +34
  • Headline earnings of R1,106 billion (2013: R1,067 billion) +4
  • Headline earnings of R1,106 billion (2013: R1,067 billion) +4

Commentary by Peter Staude, CEO of Tongaat Hulett:

The results for the year ended 31 March 2014 were achieved with significantly increased momentum and value in land conversion and development activities, together with a strong performance from the starch operations, at the same time as the sugar operations’ profit being negatively affected by severe market dynamics impacting revenue and cane valuations, partially off-set by substantial cost reductions and volume growth.

The starch operation grew operating profit to R482 million (2013: R388 million). Starch and glucose processing margins benefitted from local maize that was competitive with international prices, favourable exchange rates and good co-product realisations. Total sales volumes grew by 4 , driven by increased exports and growth in the coffee/creamer sectors which offset declines in other local sectors.

Land conversion activities generated operating profit of R1,080 billion from sales of 259 developable hectares, with a further 8 200 developable hectares still available and earmarked for development. In the past year, 63 developable hectares were sold at an average profit of some R7,6 million per developable hectare in the Umhlanga Ridgeside, Izinga/Kindlewood, Cornubia Industrial and Business areas, as well as a site for a major retail facility that links Cornubia to Umhlanga Ridge. The sale of an entire precinct of 6 developable hectares to a single developer in Umhlanga Ridge Town Centre was concluded that will yield some 1 500 affordable rental homes over time and represented profit of R24 million per developable hectare. Tongaat Hulett continues to work together with Government and related organisations to capture the synergy of each other’s unique capabilities and to maximise the value for all stakeholders that can be derived from the region between Durban and Ballito. The past year has seen two transactions for the sale of 190 developable hectares to Dube TradePort that, while not yet shovel ready, adjoins the international airport and is of strategic importance to the KZN Provincial Government’s medium term growth plans.

Operating profit from the various sugar operations totalled R908 million (2013: R1,4 billion). The world sugar price has been at its lowest level in many years. In the regional markets, substantial local market sales were lost to imports as a result of inadequate protection during this period of world surplus, leading to increased export volumes. Exports from Zimbabwe and Mozambique to the EU averaged some 8 US cents per pound lower than the levels in the last two years. Overall, revenue earned and cane valuations were negatively impacted by some R1,5 billion compared to last year, with the cane valuation charge in the income statement being a non-cash item. The sugar operations’ total operating profit before the impact of cane valuations was R1,061 billion compared to R962 million in the prior year, as the negative impact on revenue of pricing and the mix of local/export sales was more than offset by the benefit of volume growth and cost savings, together with favourable exchange rates.

Tongaat Hulett’s total sugar production grew by 170 000 tons to 1,424 million tons, compared to the low point of 1,006 million tons in 2010/11. South Africa produced 634 000 tons (2013: 486 000 tons), Mozambique 249 000 tons (2013: 235 000 tons), Swaziland 53 000 tons of raw sugar equivalent (2013: 58 000 tons) and Zimbabwe produced 488 000 tons of sugar (2013: 475 000 tons).

The past year has seen considerable increases in wage rates, particularly at the lower levels where the majority of man hours are worked, as well as price increases for bought-in goods and services. Notwithstanding this, significant success has been achieved to reduce the cost of sugar production in respect of goods, services, transport, marketing, salaries and wages. The unit cost of production in South Africa reflected the benefit of volume growth with limited cost increases.

In Zimbabwe, revenue in US dollars was 25 lower than the prior year, as a result of lower local market sales (mainly due to substantially increased imports in the market) with the resultant additional lower priced exports. Cane valuations were impacted by lower prices and the effect of curtailed root replanting as a consequence of the water dynamics during the year – reflecting a US$33 million negative change in the income statement compared to last year. The dams have now recovered, following good rains, to the extent that new root replanting has now resumed. The cost of bought-in goods and services, salaries and wages was US$40 million lower than the prior year. The operating profit from the Zimbabwe sugar operations amounted to US$33 million (R330 million) compared to the last year of US$74 million (R625 million).

Mozambique experienced the same dynamics, with an 11 reduction in Metical (Mt) revenue mainly as a result of lower export prices. There was also a negative cane valuation impact in the income statement – amounting to a change of Mt676 million (equivalent of R229 million) compared to last year. The cost of goods and services, salaries and wages was lower than the prior year by an amount of Mt267 million, which was the Rand equivalent of R91 million. Taking all these factors into account, operating profit from the Mozambique sugar operations reduced to R168 million (2013: R421 million).

The South African sugar operations, including the agriculture, milling, refining and various downstream activities recorded operating profit of R340 million (2013: R308 million). The benefit of substantial growth in sugar production was partially offset by the pressure on revenue of lower local market volumes and net prices as a result of import competition, lower export prices and the reduced benefit of cane valuations compared to the prior year. The 30 volume growth was achieved with the total increase in the cost of goods, services, transport, marketing, salaries and wages being limited to 10 .

The Swaziland sugar cane growing operations reported operating profit of R70 million (2013: R76 million).

The centrally accounted and consolidation items together with lower BEE IFRS 2 charges amounted to R97 million (2013: R53 million). A pension fund recognition benefit in the prior year was not repeated in the current year. Finance costs amounted to R609 million (2013: R560 million) and were commensurate with the borrowing levels earlier in the year.

Operating cash flow improved by R750 million to R2,93 billion (2013: R2,18 billion) before working capital. Operating cash flow exceeded operating profit as the latter includes the non-cash reduction in the fair value of sugar cane. The higher working capital cash absorption in the current period is particularly as a consequence of higher sugar stock levels at year-end in Zimbabwe and increased debtor levels in the South African developments operation following the higher level of land sales. Net cash flow for the year, after dividends, was a positive R300 million, a R480 million improvement over last year. Net debt at the end of the year was R4,32 billion which is lower than the last two years (2013: R4,64 billion and 2012: R4,40 billion).

Total net profit before the deduction of minority interests was R1,227 billion (2013: R1,179 billion) and headline earnings attributable to Tongaat Hulett shareholders amounted to R1,106 billion compared to R1,067 billion last year. A final dividend of 210 cents per share has been declared, bringing the annual dividend to 360 cents per share (2013: 340 cents per share).


Earnings are expected to increase in the full year ahead, driven by continuing growth in operating profit and cash flow.

Sugar prices are expected to stabilise, at least. Better import protection should lead to lower exports being necessary. The value of standing cane has undergone a write-down in the 2013/14 year, to reflect the current low sugar prices. As yields increase and the hectares under cane grow, a cane valuation gain would be expected.

The sustainable cost reductions of the past year provide a good base for the next steps in the ongoing cost reduction process and unit costs of sugar production will also continue to benefit from further growth in volumes and better yields, as milling costs and many of the agricultural costs per hectare are mostly fixed.

Tongaat Hulett is in the fortunate position of having more than 700 000 tons per annum of existing unutilised sugar milling capacity (a R13 billion replacement value) and increasingly good electricity and ethanol prospects. The incremental / marginal profit from each extra ton of sugar is attractive. Sugar production is expected to increase from 1,424 million tons in the past year to more than 1,800 million tons over the next four years, with the focus on increasing cane supplies continuing.

A period of unsustainably low international prices has been experienced following two seasons of exceptionally good weather conditions for sugar cane growing globally, high stock levels and low Government controlled ethanol prices in Brazil. The changes in the EU are ongoing, with some fundamentals remaining in place, including duty free access for Mozambique, Zimbabwe and Swaziland. At present, the EU market position seems to have stabilised at the current lower levels, in anticipation of reform in 2017.

Recently instituted measures in Zimbabwe to protect the local market against unfair import competition are expected to yield benefits. South Africa will benefit from the recently increased reference price used in the import duty calculation, particularly if the exchange rate remains at current levels.

The starch operations are well positioned to continue to perform strongly. The latest maize crop estimates are for a larger crop and competitive maize costs are expected.

The current momentum in unlocking value from land conversion and development is expected to continue. Over the next 5 years, sales will come from the urban expansion north of Durban in the Umhlanga and Cornubia areas, coastal lifestyle areas of Zimbali and Sibaya, business and residential development around the airport, coastal development north of Ballito in Tinley Manor and in the Ntshongweni area west of Durban. Sales of between 1 000 and 1 500 developable hectares are expected to be achieved over the 5 year period, based on current economic conditions. Good progress is being made with the targeted sale of 42 developable hectares of some of the remaining prime land in Umhlanga Ridgeside, the area where a net cash profit of R34 million per developable hectare has been achieved. The majority of the land conversion profits for 2014/15 are expected to be reported in the second half of the year while cash flow in the first half of the year will benefit from the land sales concluded towards the end of 2013/14.

Tongaat Hulett’s positive socio-economic profile in the southern African region continues to grow. In KwaZulu-Natal there are established collaborations with Provincial and Local authorities in the inextricably linked areas of sugar and cane activities (the planting of 24 979 hectares in the last three years has created some 6 250 direct jobs in rural areas), the development of urban areas (including Cornubia) and maximising the future benefit of renewable energy. The situation in Zimbabwe is in a constructive phase, with Tongaat Hulett, the Government and local communities working together on socio-economic initiatives in the south-eastern Lowveld region of the country. This was again demonstrated by the proactive response of the authorities to the recent illegal attempt at land invasion. One of the key focus areas remains the orderly development of sustainable private sugar cane farmers. At the end of the 2013/14 season, some 813 active indigenous private farmers, farming on some 14 000 hectares and employing more than 6 700 people, supplied 1 017 000 tons of cane at a cane yield of 74 tons cane per hectare harvested, generating US$58 million in annual revenue. Current initiatives will increase this, by the 2017/18 season, to some 1 022 private farmers supplying more than 1 800 000 tons of cane at a cane yield above 100 tons cane per hectare harvested from 18 880 farmed hectares.

The business is in a good position to benefit from multiple actions taken across a wide front, with its footprint in six SADC countries, its ability to process both sugar cane and maize, renewable energy opportunities and increased momentum in land conversion.

Peter Staude
Chief Executive Officer

About Tongaat Hulett

Tongaat Hulett is an 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 sugarcane and maize. Renewable energy, in the form of biofuel production and electricity generation, is of increasing importance to the business. The water-food-energy nexus is an evolving dynamic as the world contends with the growing impact of climate change. Tongaat Hulett balances the operational requirement for sugarcane supplies to its cane processing operations with other priority uses of agricultural land and its transition to higher value uses at the appropriate times. The current focus prioritises the business leveraging its asset base in six Southern African Development Community (SADC) countries.

Tongaat, KwaZulu-Natal

26 May 2014


Issued by: Tongaat Hulett
Michelle Jean-Louis
Communications Executive
Telephone: 083 386 3846