· Revenue up 5% to R8.5 billion
· Operating profit down 23% to R1.3 billion
· Net finance costs down 50% on substantially reduced debt; favourable exchange rate movements
· Profit before tax up 23% to R677 million
· Dividends and operational support fees of R140 million received from Zimbabwe
· Commitment for R2 billion underwrite as part of potential R4 billion equity raise
Tongaat Hulett today announced interim results for the six months ended 30 September 2021, reflecting progress made with the group’s turnaround strategy.
Despite a challenging operating environment, including ongoing COVID-19 impacts, the July unrest in KwaZulu-Natal, adverse weather conditions and ongoing hyperinflation in Zimbabwe, Tongaat Hulett continues to progress its turnaround, securing a strategic underwriter for its equity raise and concluding a refinance of its South African debt facilities.
Revenue grew by 5% to R8.5 billion (September 2020: R8.1 billion*) driven by higher revenue in the Zimbabwe and Mozambique sugar operations. If the disposal of the Namibia and Eswatini operations are excluded from the prior period comparison, revenue from continuing operations increased by 10%.
The civil unrest in KwaZulu-Natal during July 2021 resulted in an estimated loss to the business of R158 million arising from lost production capacity and cane burnt in arson fires during this time and its resultant impact on production efficiency. Insurance claims are being progressed. In addition, R38 million was lost through the looting of sugar in a third-party warehouse. The third-party has been invoiced for the recovery thereof, with R12 million having been received in November 2021.
Whilst the sugar operations experienced mixed performances during the six months as a result of lower sugarcane yields, the disruption caused by the civil unrest and various production-related challenges at the mills, revenue for our sugar operations (excluding disposals) increased by 10% to R8.4 billion.
Despite the impact of the July unrest on the industry, Property revenue increased to R83 million. Cash flow pleasingly increased by R120 million, relative to an R83 million outflow in the prior comparable period.
Net finance costs (including foreign exchange differences) reduced by 50% to R525 million, benefitting from lower debt levels in South Africa following the conclusion of key debt reduction transactions in the prior year, and the non-repeat of a large foreign exchange loss in the prior year. The lower debt costs contributed to an improvement in profit before tax for the period by 23% to R677 million.
Tongaat Hulett CEO Gavin Hudson said:
“It is time for a new chapter for Tongaat Hulett. We believe that through a rights offer of up to R4 billion, Tongaat will unlock long-term growth, protect intrinsic shareholder value and create a legacy for the many people dependent on the Tongaat business across SADC.
The core strategy is to be a cost competitive sugar producer predominantly focussed on South Africa, Zimbabwe and Mozambique, and capitalising on our portfolio of premier properties in KZN. The Board believes that we have a strategy suited for the industry and the environment in which we find ourselves. This has been borne out by the resilience of our performance despite various unforeseen factors and circumstances.
Our strategy has evolved and we see the next phase of our journey shifting from stabilising to growing the business, through several initiatives focused on agriculture, technical excellence, and diversification opportunities, optimising the land portfolio and ensuring that we continue building on operational and ESG initiatives.
We have reduced our debt by 41%, through disposals worth R6.6 billion, improved cash flow and successfully repatriated dividends from Zimbabwe. Our efforts to invest in people, capacity and processes continue. We also refocussed capital expenditure under a 5-year programme designed to sustain and improve all operations.
Tangible progress continues to be made in rebuilding a once fragile organisation and restoring Tongaat to sustainable growth.”
An overview of key financial features
· Revenue up 5% to R8.5 billion (September 2020: R8.1 billion*) – Zimbabwe and Mozambique sugar operations saw pleasing revenue growth due to strong local demand. Growth is even stronger when considered against the R402 million contribution of the disposed Namibia and Eswatini businesses in the prior year. Revenue on a like-for-like basis, excluding the disposals, increased 10%.
· Operating profit down 23% to R1.3 billion (September 2020: R1.7 billion*) – These movements reflect the impact of lower sugar production due to lower yields across all regions, civil unrest and other production related challenges in South Africa, and increased dollar-denominated expenses in Zimbabwe. On a like-for-like basis, excluding the R183m profit on disposal of the Namibian packing operation in the prior period, operating profit decreased by 10%.
· Cash generated from operations decreased to R1.2 billion (September 2020: R1.3 billion) – A key strategic focus areas has been to increase the cash generation from operations, and this momentum continues. Cash flow from operations decreased by R174m when compared to the prior period, which includes a cash flow contribution of R91 million from disposed operations in the prior year. The SA sugar operations, in particular, produced a strong improvement in cash flow generation, as did the Property business.
· Net finance costs down 50% – Successful disposals, cash flow management and cost reduction initiatives translated into lower debt. This, together with the non-repeat of a large foreign exchange loss, resulted in a significant reduction in net finance costs. This demonstrates the massive importance of reducing debt to sustainable levels.
· Profit Before Tax up 23% to R677 million (September 2020: R552 million*) – The prior period includes a R223 million contribution from Namibia and Eswatini operations. On a like-for-like basis, this increased by 106%.
· 97% tax rate – Despite pleasing growth in Profit Before Tax, a tax rate anomaly resulted in a profit from continuing operations of R23 million (September 2020: R385 million*). In addition, profits were also mainly generated in Zimbabwe (with minority interests), whereas the tax and the major interest expenses both sit in South Africa. This resulted in a loss per share of 174 cents (September 2020: earnings of 80 cents*) and headline loss per share of 188 cents (September 2020: earnings of 44 cents*).
· Gross Borrowings – debt reduced by 41% through disposals and cost and cash management. Debt needs to be reduced to sustainable levels and this can only be achieved through either a rights issue of up to R4 billion or further strategic asset sales. If sales of our strategic assets were to proceed, these would have a negative impact on our regional sugar presence and may not realise the full value of these assets. Moreover, the disposal of cash generative assets will impact the group’s ability to achieve a sustainable debt level.
*Restated – Management revised and corrected the prior year period for certain timing and classification differences it had identified, which led to a restatement of prior year results.
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