INCE CONNECT / 03 FEBRUARY 2020 - 04.44 / STEPHEN GUNNION
The sugar producer and land owner is expected to resume trading of its shares on the JSE after releasing interim results on Friday.
Tongaat Hulett may resort to a rights issue in order to reduce its debt burden. The sugar producer and land owner has also started exiting direct sugarcane farming in South Africa in a move that will help create a large-scale black-owned sugarcane farming enterprise.
Tongaat's shares start trading on the JSE again this morning, almost eight months after it asked for their suspension. Following the release of interim results on Friday, the sugar producer and land owner asked the JSE to lift the suspension from today after giving shareholders the weekend to mull over more losses.
As part of its turnaround strategy, the group said it launched Uzinzo Sugar Farming, with it retaining 20%, and employee trust 15% and 65% by three African previously disadvantaged individuals. It has leased three prime agricultural estates to Uzinzo, making it the largest Black grower in the SA sugar industry and one of its top 5 largest supplying private growers. It said this made Uzinzo big enough to farm more cost competitively than Tongaat could as a corporate.
Tongaat said its performance over the six months to end-September was skewed by the application of hyperinflationary accounting for its Zimbabwe business, which affected the fair value of its biological assets in that country. Mozambique returned to profit due to higher local sales on the back of beneficial pricing and promotions, as well as successful cost containment. However, its SA sugar operations reported a bigger operating loss due to lower sales volumes and a shift in sales toward lower margin exports.
Revenue decline by 1.5% to R8.09 billion but operating profit quadrupled to R1.28 billion due to the effect of the hyperinflation accounting and the re-recognition of some previous land deals. However, the improvement was countered by a 47% increase in net finance costs to R894 million, a non-taxable net monetary loss arising from the hyperinflation accounting and a much bigger tax charge. The net effect was a 19% reduction in its net loss to R318 million for the period. Its basic loss per share improved to 235c from 356c. Its headline loss per share shrank to 233c from 322c.
The company said it was making steady progress on improving cash flow, with an increased focus on operation performance and reducing costs. It said it was on track to meet its first-year target of a R1 billion improvement in cash flows. It had also met and exceeded its first debt reduction milestone of R500 million. As part of a refinancing arrangement entered into last December, the group has committed to reducing its SA debt by at least R8.1 billion by March 2021, from R11.4 billion at the end of March 2019.
It said asset disposal assessments were at an advanced stage but it would only consider sales at the right price and right time. In November, it announced the disposal of its sugar packaging distribution business for R220 million. If it gets the approval of the Namibia Competition Commission, its R112 million share of the proceeds will be used to further reduce debt.
Tongaat Hulett has taken decisive steps to stabilise the business, strengthen its governance and financial structures, restructure its high debt levels and initiate processes to start reducing the debt to more sustainable levels," the company said. "While early in the process, it is encouraging to note signs of progress emerging on several fronts, in terms of the positive steps being taken towards positioning Tongaat Hulett for its return to sustainable value creation for shareholders."
Due to constraints on distributing profits from Zimbabwe and Mozambique, Tongaat said its high debt could only be serviced by SA earnings, or the proceeds of asset sales and/or an equity capital raise. While the turnaround of its SA sugar operations had been significant, it said this wouldn't be enough to meet the debt repayment timeframes it agreed with its lenders.
Tongaat's shares were trading at R13.21 when they were suspended on 10 June, following a 76% decline since last January.
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