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Harare - Sugar producer, Tongaat Hulett is to cut jobs in the next few months as the drought-hit agro-processing firm - whose half year profits declined by 10% to R1.36bn - battles declining profitability from its South Africa and regional operations, forcing it to embark on a cost cutting programme to save cash.
In the past two years, Tongaat Hulett [JSE:TON] carried out cost saving measures that helped it conserve R950m. However, input price increases and the most severe drought in several years in South Africa has forced it to pursue further cost cutting initiatives in the next six months.
This will affect areas such as employee salaries and wages, transport, marketing and other goods. The company has also been hurt by lower sugar prices for its exports into the European Union market.
"The sustainable cost reductions achieved over the past two years (equivalent to some R950m in real terms), while having to absorb input price increases, provided a good base for the next steps in the concerted cost reduction process in the sugar operations. An overall reduction in goods, services, transport, marketing, salaries and wages costs in real terms is expected this year," Tongaat Hulett chief executive officer, Peter Staude, said on Monday.
The move to cut salaries comes at a time when employees in most sectors in South Africa are already pushing for salary raises. Wage reductions and disputes between employers and employees often causes disruptions to production in South Africa.
Staude said Tongaat Hulett’s reduced sugar output for the half year period ended September 30 had been “driven by poor growing conditions, particularly in South Africa”. Africa’s second largest economy is battling dry weather conditions and projected dry conditions in other key producing markets for the company such as Zimbabwe will further hurt production for the full year, analysts said.
“Production levels in 2016/17 will largely depend on the extent of rainfall over the next 7 months. The drought has already had an impact, particularly in South Africa. In Zimbabwe, Mozambique and Swaziland the quantum of irrigation is being reduced as a mitigation measure against potential poor rainfall in the coming months,” said Staude.
The company on Monday posted a 5.7% revenue drop in its half-year results for the six months to end-September 2015.
In total, for the six months, revenue amounted to R7.6bn (2014: R8.073bn) and operating profit fell by 9.9% to R1.361bn (2014: R1.510bn).
South African sugar operations, including the agriculture, milling, refining and various downstream activities, saw an operating profit drop to R154m (2014: R259m). The drought in KwaZulu-Natal (including the Darnall mill not being opened this season) resulted in a substantial decrease in production volumes compared to last year. Because of this, sales volumes fell by 88% compared to the same period last year.
READ: Tongaat Hulett profits drop 10%
Tongaat Hulett shares were trading down 1.16% to R108.72 just before the lunch time break.
