Tongaat’s turn around strategy yields results reporting 38% rise in half year revenue

SOUTH AFRICA – Sugar producer Tongaat Hulett has delivered significantly improved financial results in a period of substantial volatility and disruption reflecting progress in its turnaround strategy.

According to the company its gross revenue from continuing operations for the six months ended 30 September 2020 increased by 38% to R8.248 billion (US$548.96m) from the previous year’s R5.984 billion (US$398.27m).

Its operating profit on the other hand rose by 96% to R1.910 billion (US$127.1m) from R973 million (US$64.7m) generated in the prior comparable period and reflects strong improvements in its sugar operations.

“Tongaat Hulett has made excellent progress and delivered in tough economic conditions, further impacted by the sudden onset of Covid-19.”

Gavin Hudson – CEO Tongaat Hullett

Tongaat’s sugar operations recorded an operating profit of R2.126 billion (US$141.5m), compared to R855 million (US$56.9m) of 2019.

The increase was attributable to a strong turnaround in the South African operations, a good operational performance in Mozambique, steady operations and hyperinflation in Zimbabwe, as well as the profit on the disposal of the Namibian packaging operation.

However, the starch and glucose operation declined to R283 million (US$18.8m) impacted by 14% drop in sales volumes from 254 499 tons to 218 806 tons.

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The company’s total headline earnings for the half year period including discontinued operations increased by 156% to R175 million (US$11.6m) an improvement from previous year’s headline loss of R315 million (US$20.9m).

While the headline loss from continuing operations reduced to R6 million (US$399,000) from R517 million (US$34.4m) in 2019 benefiting from cash flow from operating activities improving by R1.9 billion (US$126.4m).

Despite the improvements, the recovery was somewhat countered by a 23% increase in net finance costs to R1.053 billion (US$70m), largely due to an increased exchange loss of R116 million (US$7.7m) on foreign currency borrowings and the impact of extending leases in Mozambique.

Reduction of debt

The group has been at the centre of an accounting scandal, which stretched over six years and resulted in it restating its 2017 and 2018 results and its share price dropping by more than 90%.

Since its near collapse, it has embarked on a recovery strategy shaking up the its corporate governance and management, focusing on transparency and accountability and begun work on its debt, which stood at R12.6 billion (US$838.5m) in March this year.

In the past six months Tongaat has put R5.76 billion (US$383m) towards the debt, against a target of a R8.1 billion (US$539m) debt reduction by 30 September 2021.

This has been spearheaded by the complete disposal transactions undertaken by the company during the period totalling R6.4 billion (US$425.9m), including the recently-finalised sale of its starch business to Barloworld in October 2020.

“Tongaat Hulett has made excellent progress and delivered in tough economic conditions, further impacted by the sudden onset of Covid-19.

“The critical indicators continue moving in the right direction, and I am so proud of how the team has risen to meet the exceptionally challenging conditions,” said Gavin Hudson CEO Tongaat Hullett.

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