Change coming to Tongaat

Durban - The face of Tongaat Hulett may change over coming years as it continues to focus on the potential of sugar cane to supply renewable energy.

"It's not a short-term project," says CEO Peter Staude.

"But few of us argue about the effects of global climate change. We know that we use too much energy, and that we can use that energy more efficiently. We all pay the price of CO2 emissions, but not necessarily the source of those emissions," he says in an apparent reference to the oil companies.

Between 60% to 90% of vehicle CO2 emissions could be cut by blending ethanol with petrol, Staude says. "Pressure is building, people will realise they have to look at renewable energy. That offers great potential for cane and its by-products."

But while the importance of renewable energy is recognised, Staude says the market is not yet prepared to pay for it.

"That will change. People told us Zimbabwe would never come right. We said, wait, it will happen. Global climate change will not go away," Staude says.

Tongaat's results for the six months ended June, released on Monday, were boosted through consolidation - for the first time - of its sugar operations in Zimbabwe.

Previously the group only took a dividend from Zimbabwe, R35m in 2008. This interim numbers from Zimbabwe came through at two levels - a balance sheet gain of R1.79bn and operating profit of R305m.

Tongaat Hulett wholly owns Triangle Sugar in Zimbabwe and has 51% of Hippo Valley Estates.

Is this likely to increase?

"You'll have to wait and see on that one," Staude says. "We are very pleased that we made that acquisition in 2007 and would like more of the company."

Debt increased to R3.06bn, from R2.36bn in the previous interim period - mainly to fund expansion of mills in Mozambique and investment in cane growing, a long cycle that can absorb cash for a number of years before there's a return.

Is Tongaat Hulett therefore considering a large rights issue to lower gearing, like its rival Illovo Sugar?

"It's always an option in this business," says Staude. "But we have not started any new projects that require cash immediately, so capital spending is on expanding existing projects."

He adds that 2010 is likely to be a strong period of cash generation for Tongaat Hulett, so debt levels should come down quickly.

This is because of vastly increased sugar capacity outside of South Africa. Countries like Mozambique, Botswana and Zimbabwe, which have become the biggest part of the sugar business, will benefit from preferential access to attractively priced European Union markets.

About half the sugar produced in South Africa, where Tongaat Hulett is the largest sugar cane grower, is exported.

- Fin24.com