Com-Watch - Issue 37 - June 2014

Tanzania
Tongaat Hulett And Illovo Sugar See Revenue Increases
Fortunately for Tongaat Hulett and Illovo Sugar consumption of sugar continues to increase. Recently implemented tariff
protection in South Africa and in Zimbabwe will also help future earnings. The government of Tanzania, where Illovo has significant
investment, is also considering tariff protection mechanisms. Tongaat Hulett’s total sugar production in the year to March grew
by 170 000 tons to 1.42m tons and it predicts production will grow to 1.8m tons in 4-years. Illovo saw production increase by 84
000 tons to 1.83m tons.
But sugar is sold on global market at prices far below Southern Africa’s, knocking export income just as exports tripled and both
companies’ earnings were affected. Tongaat notched up a 9% revenue increase to R15.7bn, translating into an 11% increase
in operating profit to R2.3bn and a 3% hike in HEPS of 978.9c. Illovo increased revenue 20% to R13.2bn, generated almost-flat
operating profit of R1.8bn that nudged diluted HEPS up 4.3% to 194c.
In the case of Tongaat, operating profits in Zimbabwe and Mozambique fell dramatically as the local operations were forced
to export surplus production. In South Africa, earnings benefited from a 30% increase in volume while costs were limited to
10%. Illovo saw its operating margin reduced from 17.2% to 14.3% as a result of cheap sugar imports. Almost 70% of Illovo’s
operating profit was generated from cane production, up from 55% last year. Cane growing generated 21%, while downstream
production and power co-generation generated 9% of profits, up from 5%. Its Zambian unit declined 4% to 303.2-million kwacha
[R482m] for the full year ended March 31.
Both companies are increasing their efforts to improve downstream production. In the case of Tongaat the starch business is
already generating substantial profits. In addition both ethanol and co-generation can be highly profitable. Growth in Illovo’s
revenues was underpinned by improved downstream furfural and ethanol sales. llovo completed the construction of its alcohol
distillery in Tanzania and the revenue will provide diversity to the 2014/15 earnings. Tongaat’s results were boosted by the sale of
land, generating operating profit of R1.08 billion.
[Citizen 28/05/14]
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