Cape Town - Tongaat Hulett [JSE:TON] on Monday announced a revenue rise of 11.7% to R8.503bn in its interim results for the six months to end-September 2016, compared to R7.609bn in the previous comparable period.
The various sugar operations generated operating profit of R825m (2015: R477m). This reflects improved local market prices, more effective import protection dynamics in the countries where Tongaat Hulett produces sugar and higher international prices, including for exports into regional African markets and the European Union.
Overall volumes are still being impacted by lower cane yields due to the severe drought in KwaZulu-Natal and poor growing conditions with low rainfall and restricted irrigation levels in Mozambique and Zimbabwe because of low dam levels, said Tongaat Hulett.
The company’s net debt at September 30 was R5.5bn, compared to R5.3bn last year. Finance costs of R408m (2015: R314m) were commensurate with the borrowing levels in the period and the higher interest rates.
Operating cash flow (after working capital movements) was R1.061bn (2015: R266m) - a R795m improvement on the first half of last year. Tongaat Hulett points out that the half-year reflects an absorption of cash in working capital, as is the norm, because of higher sugar stock and debtor levels in the middle of the sugar season.
Headline earnings for the half-year amounted to R631m (2015: R607m). The intention going forward is to place more emphasis on the final dividend as distinct from the interim dividend, given the agricultural nature of Tongaat Hulett’s activities. Against this background, an interim dividend of 100 cents per share has been declared (2015: 170c/share).
In the near term Tongaat Hulett should continue to benefit substantially from improved local sugar market revenues (volumes and prices) with the improved import protection measures and better export revenues. Cost-cutting measures continue.
Sugar prices in the international market have surged by about 50% over the past six months amid a second year of a global supply deficit and continuing steady increases in global demand levels. Prices have now begun to stabilise and forecasts for the next 18 months are that they will remain at current levels.
In the medium term, there are emerging concerns of the ability of global supply to match global demand at prevailing price levels. Global sugar consumption is predicted to continue to grow at a rate of about 1.5% per annum, with most of this growth coming from low per capita consumption developing countries
Looking further ahead, the company said it will continue to enhance its strategic positioning, focusing on multiple strategic thrusts, all with a positive impact on earnings and cash flow, through the various cycles that the business experiences, to extract higher returns from the existing asset base.