Tongaat Hullet Zimbabwe operations report 7% decline in production


The group attributed the performance to poor growing conditions as a result of low rainfall and restricted irrigation levels

TONGAAT Hullet Zimbabwe operations recorded a 21% decline in revenue in the year to March but when adjusted for stock movements the topline dropped 8.04% to $263 million. According to Tongaat Hullet’s group results, Zimbabwe production was down 7.42% to 412 000t from 445 000t last year.

The group attributed the performance to poor growing conditions as a result of low rainfall and restricted irrigation levels and to a lesser extent electricity unavailability. In addition, export volumes were lower after a drop in the international sugar prices.

“There were both lower export sales volumes and lower export prices. Domestic market sales volume levels have been maintained,” said the group in its results statement. However, the trend on global prices is expected to improve.

Prices for sugar in the international market have been improving in the light of prospects for an increasing shortfall in global production after 5 years of surplus production, high stock levels and a low world price. Droughts in India and Thailand together with farmer behaviour worldwide, driven by low prices and input cost pressures, are exerting downward pressure on global sugar production levels. Global sugar consumption is predicted to continue to grow at a rate of some 1,5% per annum, with most of this growth coming from low per capita consumption developing countries.

The group said sugar refining matters are being addressed, which should lead to the replacement of imported industrial white sugar. Growth is expected in consumption per capita, off a low base, particularly in Mozambique and partly in Zimbabwe, supported by distribution and marketing initiatives.

In Zimbabwe, the strength of the US dollar had exerted pressure, particularly in respect of US dollar based costs (such as wages and salaries) and Euro based revenues. As a result, operating profit slumped to just $1 million from $35 million last year, a decline of 97%

The benefit of improved import protection and higher prices in the various local markets was largely not yet reflected in revenue earned in the 2015/16 year due to the timing of the increases.

Group-wide, Tongaat said the current year should see improved local sugar market revenues (volumes and prices) following the import protection measures implemented in South Africa and Mozambique (higher US dollar based reference prices for the calculation of import duties) and Zimbabwe (import duties and import permit controls). Actions to reduce costs will continue.

Total sugar production in 2016/17 is expected to continue to be impacted by the drought in KwaZulu-Natal and, in Zimbabwe, Mozambique and Swaziland, the quantum of irrigation has been reduced as a mitigation measure against poor rainfall and low dam levels. The estimate for sugar production in total for the 2016/17 season is between 990 000 and 1 150 000 tons, compared to 1 023 000 tons last year. Rainfall during the summer of 2016/17 will determine whether more regular production levels return in 2017/18 – FinX

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