Fewer land sales mean Tongaat’s difficulties continue
Interim headline earnings likely to plunge 60%
Struggling sugar producer Tongaat Hulett’s difficulties have spilled into the new financial year, with the company expecting interim headline earnings to fall by 60%.
The expected fall in earnings for the six months to end-September attests to the difficulties the company has been experiencing, with its sugar operations under pressure due to high volumes of imported sugar. In the past financial year, company’s headline earnings were down 37%.
Amid the poor financial performance, the company in August announced that the retirement of long-serving CEO Peter Staude had been brought forward to November. Staude, who has been at the helm of the company since 2002, said in June the transition process was expected to be completed only by April 2019.
The company in September announced the appointment of Sydney Mtsambiwa as interim CEO, with effect from November 1. This fuelled speculation that the company’s poor performance brought about the leadership change. Tongaat has lost more than 40% of its value on the JSE in 2018.
In a statement on Friday, the company attributed the expected fall in earnings to the conclusion of fewer-than-expected land sales in the six months ended September. It said it had not concluded any of its major transactions planned for the period.
The conversion of sugarcane plantations to urban land has previously boosted the company’s profits. In the year ended March 31, the sale of 96 developable hectares resulted in operating profit of R661m. In the previous year, the company received operating profit of R641m from the sale of 75 developable hectares.
As at March 31, Tongaat Hulett had a portfolio comprising 7,612 developable hectares of prime land in KwaZulu-Natal, which the company wants to convert to urban land usage. Staude earlier in 2018 said the company expected to sell between 600 and 1,100 developable hectares over the next five years.
Alongside starch operations and sugarcane operations, land conversion is a key focus area for the group.
The company said that in addition to its inability to conclude the land sales, sugar imports affected volumes and pricing in SA. In the year ended December 2017, imports into the SA market increased to 520,000 tons.
Tongaat’s share price closed 3.49% at R68.08 on Friday.