Industrial Reporter
THE stronger rand and an expected drop in the sugar crop are reasons given for an anticipated "major reduction" in earnings for TongaatHulett for the first half of the year.
This was announced in a trading statement put out by the sugar and aluminum group after it held its annual general meeting on Friday. The release of this statement was followed by the share price falling 3,32% or R1,10 to close at R32.
Tongaat-Hulett said it would now be focusing on reducing overheads, minimising expenditure, and maximising cash flows.
This warning followed TongaatHulett taking a R151m foreign exchange knock on its balance sheet for the year to December. The rand's strength was blamed for the unrealised translation loss on its GBP42m offshore cash reserve.
Tongaat-Hulett CEO Peter Staude said the group was exposed to the rand's volatility because it was "heavily geared to exports". The group earned 34% of its total revenue for the full year from exports. This was down from 36% in the previous year.
While Staude was willing to attribute the rand's strength for the expected drop in earnings, he would not be drawn on whether the offshore funds could have been better utilised.
Asked if the group had hedged its funds, Staude said he would "rather not comment" on the matter. He did however say the funds were in a short-term facility and were not there for speculative purposes.
The group was keeping the cash offshore as a war chest for a possible acquisition. Although it got close on a number of occasions, such an acquisition remained elusive.
Staude said Tongaat-Hulett had looked at businesses in Swaziland and at one stage in Zimbabwe.
Aside from the rand's woes, Staude said the low rainfall in KwaZulu-Natal meant that the sugar crop in that region was expected to be lower.
Staude said the group's African Products subsidiary was also under pressure due to the domestic maize price almost halving.
While the outlook for the first six months of the year was dim, Tongaat-Hulett expected the group to improve its performance in the latter half of the year.
Staude pointed out that this was not the first time the group put out this negative outlook, as it had made similar comments in its 2002 annual report which was released earlier this year. He said now that the first quarter was past it had become clear that conditions were not going to improve.
Tongaat-Hulett said its balance sheet was strong despite the anticipated setback in earnings. The group said it would try to maintain its interim dividend for the half- year.
The expected downturn in Tongaat-Hulett's results is a turnaround from the rise in earnings for the year to December.
The group showed a 22% rise in revenue to R6,1bn and a 24% increase to R738m in operating earnings for the year.
Earnings in the previous year was boosted at the time by the weakness of the rand which saw it gaining R255m in the translation from foreign exchange.
Apr 14 2003 07:31:51:000AM Larry Claasen Business Day 1st Edition
Monday
14 April 2003
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