The latest financial results released by Africa’s largest sugar millers and refiners shows while sugar production is up, profits are down with no relief in sight before the 2019/20 financial year.

As the South African government and the sugar industry reportedly carry on talks behind the scenes in a bid to find a sustainable future for production in the country, the release of the annual and interim financial results for the region’s major milling groups show a year with more downs than ups.

Tongaat Hulett interim CEO, Sydney Mtsambiwa said the sugar and property development group had “encountered significant challenges” with operating profit for the period ending September 30, 2018, at 64% below the R1 471 billion earned over the same period in 2017.

He said the difficult market conditions experienced by the group’s sugar operations in South Africa and Mozambique during the second half of 2017/18 had continued into the first half of 2018/19 resulting in a negative impact on both revenue and cane valuations.

Illovo Sugar-millers_DSC4695

Sugar production increase

While the sugar operations recorded a combined operating profit of R1 138 billion against R1 308 billion in 2017, before cane valuations, revenue from the higher production was offset by a lower world market raw sugar price which averaged at 22% below the previous comparative period.

Sugar production for the six-month period from April 1 increased to 954 000 tons against 848 000 tons in the previous period, including the raw sugar equivalent production in Eswatini (formerly Swaziland).

Operating profits for the Tongaat Hulett group in the Southern African Development Community also dropped significantly with the Zimbabwe recording an operating profit of R537 million against R580 million before cane valuations in 2017 and in Mozambique, the sugar operations recorded an operating profit of R341 million against a R394 million before cane valuations in 2017.

Zimbabwe pays dividends

A dividend of R114 million was received from the group’s Triangle operation in Zimbabwe, bringing the total received since the beginning of September 2017 to R372 million with a process to remit a further dividend from Zimbabwe currently underway.

Tongaat Hulett will also commission its new refinery at Xinavane in Mozambique which Mtsambiwa said would replace imported white sugar and satisfy the country’s growing demand for industrial sugar.

He said in South Africa where cheap imports had severely impacted on the industry (for at least 7 weeks this year imported sugar flooded the country free of any tariff) the effects of the subsequent introduction of a higher tariff in August by the International Trade Administration Commission (ITAC) were, however, starting to kick in.

“Indications are that imported sugar is working itself out of the market although the extent of the ‘buy-in’ at the lower price may slow sales volumes in the second half of the year,” he said.

The Dollar-based Reference Price on which the tariff is calculated rose from US$566 for a ton (equivalent import price of R8 469.00) of sugar imported to US$680 a ton (equivalent import price of R10 174.00).

While the higher duty protection would assist in rebuilding margins for both millers and growers, Mtsambiwa said he believed the full benefit would only become evident in the 2019/20 financial results.

AB Sugar posts operating profit decline

In his first annual report to shareholders having succeeded Charles Sinclair as Chairman of Associated British Foods (ABF) – which wholly owns Illovo Sugar – Michael McLintock said the end of the European Union sugar regime resulted in a decline in the operating profit for AB Sugar, however, the “strength and breadth” of the group had enabled them to absorb a major reduction in profit and still achieve progress in profit for the group overall.

Ongoing global sugar businesses across the group for the 52 weeks ending September 30, 2018 posted a revenue of £1 730m (about R32bn) against £2 034m (R37bn) in 2017.

The adjusted operating profit was pegged at £123m (about R2,3 billion) versus £249m (R4.6bn) in 2017 and the adjusted profit margin at 7.1% against 12.2% in 2017. The return on average capital employed was 7.5% compared with 15.7% last year.

On the outlook for the forthcoming financial year for the group’s sugar investments, Sinclair predicted the profit at AB Sugar to be “significantly” lower, reflecting the full year effect of the current level of EU sugar prices which, he said, would represent a further reduction on the average prices achieved this year.

The EU prices, McLintock, said had mostly affected their UK and Spanish businesses, while Illovo had recorded “another successful year” and continued to be profitable.

Sugar production at Illovo Sugar which is headquartered in Durban, South Africa, increased to 1.7 million tons from 1.64 million tons last year.

“Favourable weather conditions improved irrigation and crop management more than offset lower yields in Zambia,” he said.

Interestingly, in the Zambian operation’s annual review for the year ending August 31, smuggled sugar into the region was described as being on the increase particularly in the first half of the financial year, ostensibly as a direct result of the availability of surplus sugar on the world market.

While both Tongaat Hulett and Illovo Sugar point to cost reduction measures through improved performance and efficiency programmes, all indications are for a rough ride ahead at least until 2020 when sugar prices EU have settled and – despite intensive lobbying for the region’s sugar industry with Britain – the final outcome of the Brexit settlement between the UK and the European Union becomes more apparent.

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Company profile sidebars if required:

Tongaat Hulett at a glance

Tongaat Hulett was formed through a merger between the Hulett Corporation Ltd and the Tongaat Group Ltd, with both their operations dating back to the 1800s. The group has had a primary listing on the Johannesburg Stock Exchange since 1952, and a secondary listing on the London Stock Exchange since 1939.

Tongaat Hulett is an agriculture and agri-processing business, focusing on the complementary feedstocks of sugarcane and maize.

The group has a substantial land portfolio in KwaZulu-Natal with expanded sugar mills and estates in Mozambique. The two operations namely at Xinavane and Mafambisse have a combined milling capacity of over 340 000 tons of sugar a year. The sugar estates are under irrigation.

In Eswatini (formerly Swaziland) Tongaat Hulett has 3 838ha of fully-irrigated farms which have the capacity to produce a Raw Sugar Equivalent (RSE) of about 60 000 tons a year.

As one of the most important employers in Zimbabwe, Tongaat Hulett has a combined installed sugar milling capacity of more than 640 000 tons and a total refined sugar installed capacity at 60 000 tons. The group’s ethanol plant at Triangle has an installed capacity of 41 million litres over a 48-week production season.

The group also owns Zimbabwe’s largest cattle herd.

Illovo Sugar at a glance

Illovo Sugar is Africa’s biggest sugar producer and has extensive agricultural and manufacturing operations in six African countries. The group produces raw and refined sugar regional and world markets from sugar cane supplied by its own agricultural operations and independent outgrowers who supply cane to Illovo’s factories.

Installed electricity generating capacity, fuelled by renewable resources, annually provides around 90% of the group’s energy requirements.  The group is a wholly-owned subsidiary of Associated British Foods plc (ABF), a diversified international food, ingredients and retail group operating in 48 countries.

In Malawi, Illovo Sugar (Malawi) which is listed on the Malawi Stock Exchange has 76% of the issued share capital held by the Illovo group, two operations produce sugar cane and raw and refined sugar, together with speciality sugars. Illovo Malawi is the country’s sole sugar producer with more than 60% of total sugar sales sold to the domestic consumer and industrial markets. The rest is exported to the EU, USA and surrounding countries.

In Mozambique Illovo holds a 90% shareholding in Maragra Açúcar SA with the balance of shares owned by a private minority investor.

In Eswatini (formerly Swaziland) Illovo has a 60% share in Ubombo Sugar, with the balance of shares held on behalf of the Swati nation.

Illovo holds 55% of the issues share capital in Kilombero Sugar Company Ltd in Tanzania which produced direct consumption brown sugar marketed and distributed by the company. 

Zambia Sugar is the group’s second largest sugar producer following a major agricultural and factory expansion project completed in 2009, which increased total annual sugar production capacity from around 200 000 tons to 450 000 tons. The company is listed on the Lusaka Stock Exchange with 76% of shares held by the Illovo group and the balance by institutional and private investors. With increased sugar availability following the expansion project, sales to preferential markets in the EU and into surrounding African countries have risen significantly. The company also produces speciality sugars for export to the EU and syrup for local consumer markets.


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