Sugar to sweeten Tongaat

22 February 2010, Business Report

Johannesburg:  Tongaat Hulett expects its profit for the year to December to increase by nearly 40 percent due to favourable weather conditions and an exceptionally high sugar price.

Tongaat, an agroprocessor listed on the JSE, yesterday issued a statement saying that its headline earnings for the year to December would increase by between 40 percent and 45 percent above the R538 million from the previous year.  The group's Zimbabwean operations are now consolidated in its financial results.

"The accounting treatment in terms of the International Financial Reporting Standards (IFRS) on the commencement of consolidation of the Zimbabwe operations gave rise to a balance sheet take-on gain of R1.9 billion, which is recognised in the income statement," the group said. 

This gain is excluded from headline earnings and profit from operations.  "We expected the group's core sugar operations, excluding the Zimbabwean operations, to perform well," said Mohamed Shafee Loonat, a portfolio manager from Element Investment Managers.

Loonat said the group's Mozambique expansion should be gaining traction and begin to increase production.  The Mozambique profit from operations increased increased 74 percent from R77m to R134m in the half-year to June last year.

In the statement Tongaat said group total net profit for the 12 months was expected to be approximately R2.8bn, with net profit a share being approximately R27 50 a share.

"The South African sugar business should also do well. Last year's crop was low and impacted by rains at the wrong time and some cane was left on the fields," Loonat said.  "The world sugar price was also much higher compared to 2008," he said.

According to the International Monetary Fund, the world sugar price rose 30 percent from 21.72 US cents a pound in August to 28.38 US cents a pound last month.

Loonat said Tongaat's starch business was also benefiting from previous restructuring and the new brewery that was built in Gauteng should help boost demand for the group's product.  He said the group benefited from low-cost production in Mozambique and Zimbabwe in an environment where world sugar prices had risen considerably and production in Europe had been cut as part of the reforms to the European sugar industry.

Meanwhile, Loonat doubted that talks of selling 50 percent of foreign-owned companies doing business in Zimbabwe would be carried through.  "Zimbabwe needs foreign investment to help rebuild its economy and laws like this will scare investors away."

He added that Tongaat would be able to manage the process in a responsible way if the law was enforced: "South African companies do have experience in the area of BEE... (black economic empowerment) Tongaat actually has two businesses in Zimbabwe, the one is unlisted, but the other is listed and already has a large Zimbabwean ownership."

Shares rose 2.1 percent on the JSE to R100.39.