Tongaat Hulett interim results

Agricultural business Tongaat Hulett posted its interim results for six months ending 30 September 2013 yesterday morning.

The group saw revenue grow by 6.2% to R7,8 billion and headline earnings (HEPS) up 1.2% to R663 million (from R655 million).  There was no change to the company’s interim dividend at 150 cents per share (cps) which keeps the full year gross dividend at 340cps.

In the land conversion and development operations, which contributes a relatively small percentage to the overall revenue (profit of R512 million from R246 million in 2012), a total of 174 developable hectares were sold over the 6 months with the largest (154 developable hectares) derived from the Dube transport sale near Durban International airport on the north coast of Kwa-Zulu Natal. Last year the group reported that revenue benefited dramatically from land sales in other Kwa-Zulu Natal north coast regions particularly in Umhlanga Ridge Town Centre, La Lucia Ridge Office Estate, Mount Moriah and Zimbali.

The South African agriculture, sugar milling and refining operations recorded operating profit of R133 million (2012: R99 million) which contributes around 30% to the group’s overall revenue. This was aided by a considerable increase in sugar production offset by the impact of imports. In total, operating profit from SA sugar operations including the downstream sugar value added activities amounted to R248 million (2012: R221 million) for the half-year. The group has an on-going strategy to increase cane supply in South Africa with an additional 8000 hectares of new cane land planted in the current year and the group remains focused on improving yields.

The greatest potential for additional hectares lies with small scale farmers and the group continues to work closely with Government as they facilitate attractive funding for these farmers. There is a co-operation agreement in place with the Ingonyama Trust, which covers some 2,7 million hectares of land in KwaZulu-Natal.

Tongaat’s African footprint extends to six SADC (Southern Africa Development Community) countries which contribute around a total 35% to the group’s revenue, the largest of which is from Zimbabwe. This is in contrast to its South African competitor Illovo which has operations mainly in Malawi, Swaziland and Zambia. Tongaat’s Zimbabwean operation employs 18000 people and there are 670 active indigenous private farmers farming 11 200 hectares which generate US$56 million in revenue. Low dam levels have caused a decrease of 50% in irrigation which has an effect on cane yields and sugar production. Going forward however, there is scope to grow this to a further 600 farmers on 12 700 hectares which could see an additional 1,4 million tons of cane produced annually.

Global worldwide sugar consumption is currently growing at 2% per annum. Due to the fact that increasing sugar milling capacity is expensive with very few new mills being constructed, Tongaat Hulett is well positioned as it still has more than 700 000 tons per annum of existing unutilised capacity. Following two years of increased production (14% and 9% respectively), the group plans to increase output by between 9% and 12% in the current year.

Source: JSE SENS

Chart source: I-Net Bridge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.