Tongaat Hulett CEO excited about property unit

Posted On Tuesday, 28 May 2013 07:11 Published by Commercial Property News
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Tongaat Hulett’s property development profits are still relatively small compared with its sugar and starch operations, but the outlook for the division is no less exciting, CEO Peter Staude said on Friday.

Peter Staude Tongaat HulettIn the past year to March 31, operating profit from land conversion and development grew strongly to R350m from R215m in 2012. Some 65ha of KwaZulu-Natal properties suited to development were sold in the past year.

Revenue was generated from sales in the Cornubia Industrial Estate, Umhlanga Ridge town centre, Ridgeside, La Lucia Ridge Office Estate, Izinga, Kindlewood, Mount Moriah and the Zimbali areas. The amount of land is small compared with the 14,000ha that the group has sold to small-scale cane farmers over the past three years. "But the outlook for our property developments has put a bounce in our step," Mr Staude said in an interview.

He said large sections of the developable land had become "shovel ready" (ready for construction and development), and there had been a great deal of interest from potential local and international buyers of large swathes of the land.

"They are likely to only start development over the next few years," he said.

Meanwhile, the group had signed an agreement with the Ingonyama Trust Board, which controls about 2.7-million hectares of tribal land in KwaZulu-Natal, to plant many more thousands of hectares with sugar cane. Mr Staude said the agreement was in line with the group’s strategy to increase sugar cane supply in South Africa, which it needs because of unused sugar milling capacity, and also to promote job creation and growth in rural areas where Tongaat operates.

The strategy was to focus on commercial farmers, small-scale farmers and increase Tongaat’s influence in cane development through leasing additional land and collaborating with the government to rehabilitate land reform farms that had gone out of cane production. Tongaat had more than 850,000 tons a year of unused sugar milling capacity, after growth in sugar production of 14% and 9% in the past two years, respectively.

The excess capacity put the group in a "fortunate position" because new sugar milling capacity was costly to build, global sugar consumption was growing at 2% a year, while the extra capacity gave the group good electricity and ethanol prospects.

Canegrowers, an organisation representing cane growers in South Africa, said on its website that recent rains in most regions would benefit the 2013-14 crop. "All things being equal, one can expect an improvement in the crop level year on year with a return to a more normal crop of between 2.2-million and 2.3-million tons sugar production," it said.

Tongaat expected to compile a bid for the first 80MW power station to be constructed at a sugar mill in South Africa — an environmental impact assessment for such a plant had been completed.

Mr Staude said most sugar mills already produced some power from sugar fibre, but costly new technology would need to be installed to optimise electricity generation from the fibre.

The diversion of world-market export sugar to a regional ethanol regime remained a key focus area with serious interest from the oil industry to use bio-ethanol as part of its options for the Clean Fuels 2 project in South Africa, the group said.

Tongaat’s revenue increased by 19% to R14.4bn in the year to March 31, while profit from operations was up 11.7%, to R2.15bn from R1.92bn last year.

The group on Friday reported that earnings per share, excluding one-off items, had increased 15% to R9.42, missing the R10.82 average of six analyst estimates compiled by Bloomberg. This was after margins came under pressure due to lower sugar prices and higher input costs and in spite of higher overall sugar production.

Headline earnings increased by 18.7% to R1.06bn. The annual dividend was raised by 17.2% to 340c per share from 290c in 2012. Total sugar production increased by 104,000 tons, or 9%, to 1.25-million tons, after increasing 14% in the prior year.

The starch operations benefited from higher co-product realisations and world competitive maize costs, particularly with the new season maize in the second half of the year.

Source: BD

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