Tongaat hails Zimbabwe renaissance

Johannesburg - Tongaat Hulett [JSE:TON] said the recovery from a "horrendous position last year" of its Zimbabwe operations, its second-largest operating region, ranked among the highlights of the sugar firm's financial year.

Tongaat Hulett CEO Peter Staude said he was bullish on Zimbabwe's fortunes. He forecast improved profits from Zimbabwe over the next two years following recent cash outlays in that country.

Staude was commenting following the publication of Tongaat Hulett full-year results for the 15 months ended March. The longer reported period is to account for a change to its financial year-end, which now corresponds with the sugar seasons of other countries in which it operates. 

Revenue from Zimbabwean soared 426% to R1.6bn compared to the corresponding previous 15 months, while profits from the operations totalled R576m, a 519% improvement.

Tongaat's group revenue increased 18% to R11.1bn and profit from operations was higher by almost a third to R1.7bn.

Key to the turnaround was the US dollarisation of the Zimbabwean economy, and restoring local sales prices to regional levels, which pushed through to the bottom line despite lower sugar output in the country.

"We are currently operating at only half capacity in Zim," said Staude. "We will look to increase our overall output by 20% to 25% in the current year, and some of that increase will definitely come from Zim," he said.

Tongaat's output in the 15 months under review was 546 000 tonnes, compared to 644 000 tonnes in the comparable period.

Net debt, which stood at just over R3bn at end-March 2010, was at a peak, according to Staude, and "serious cash flows" were expected to filter through the bottom line over the next two years.

As a result of the higher net debt, Tongaat's financing costs increased 23% to R452m compared to the equivalent period.

The company has ended the financial year with R140m in cash, almost half of its R229m in cash reserves as of December 2008.

Lower cash on hand was owing to significant capital expenditure on milling and sugar cane planting projects in the southern African region.

Tongaat typically operates on two-year cycles and it is currently emerging from a planting phase. Over the next 18 to 24 months, the company will concentrate on milling. 

The group is relatively immune to the volatile world sugar price because more than two-thirds of output is sold within the Southern African Development Community (SADC).

Prices are relatively stable in the SADC trading region, and 18% is exported to the European Union where it benefits from a sugar price floor.

 - Fin24.com