Sugar giant Tongaat post improved earnings

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  • Earnings per share to grow by between 105% to 117%
  • Operating profit soared by more than 200%
  • operating profit for Zimbabwean unit increased by more than 140%

Harare – JSE listed sugar manufacturer Tongaat Hulett posted a positive operational update for the year ended 31 March 2020 despite the last quarter of the year being affected by the coronavirus.

The company is emerging from a scandal which claimed the whole executive management after a series of financials misrepresentation were busted.

In an operational update, the group expects earnings per share (EPS) and headline earnings per share (HEPS) for the year ended 31 March 2020 to grow by between 105% to 117% and 106% to 116% respectively.

The group said operating profit for the year ended 31 March 2020 soared by more than 200% from R1.2 billion in the prior year.

The surge in profit was a result of excellent progress with the overall business turnaround strategy.

Tongaat highlighted that whilst hyperinflation in Zimbabwe had a significant bearing on the reported growth, it is the return to profitability in the Mozambican operations and the reduction in the operating loss in South Africa, that most clearly demonstrate the improvements that have been made in the past year.

The group also said operating profit in the Zimbabwean operations increased by more than 140%.

Sugar production, however at the Zimbabwean operations declined marginally while local sales volumes and pricing were managed carefully to prevent sales arbitrage to surrounding markets.

Tongaat added that ethanol sales grew substantially while the contribution from exports remained stable.

Surplus export proceeds were prioritised to reduce foreign-denominated borrowings which decreased to US$6.9 million from US$17 million at March 2019.

Tongaat also added that the starch and glucose operation continued its stable and predictable operating performance.

Likewise, sales volumes were steady, with domestic sales volumes benefiting from increased demand in alcoholic beverages, continued growth in the coffee creamer sector and importantly the recapture of imported glucose volumes within the confectionary sector, with the latter also benefiting from new customer investments.

As expected, the group said the high maize prices impacted margins, resulting in a modest reduction in operating profit in the starch and glucose operation.

However, the strong cash generation in the business continued.

Meanwhile, the South African sugar operations produced significant improvements in production, productivity and cost management, culminating in improved cash flows and a more than 70% reduction in the operating loss in these operations.

Tongaat also said, “After adjusting for depreciation and fair value movements on biological assets, the operation reflected an operating profit for the year. This is despite a number of once-off costs resulting from the turnaround initiatives progressed within the business.”

The Mozambican sugar operations generated a meaningful operating profit, compared to a loss in the previous two years.

 Local market sales increased by more than 20% and the Xinavane refinery generated a notable profit in its first full season of operation. Good cost containment contributed further to the positive result.

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