Tongaat Hulett surges as its flags a return to profit
The share price has reached its best level in seven months and the group expects an interim profit amid a turnaround for SA sugar
Embattled sugar producer Tongaat Hulett’s share rose to an almost seven-month high on Wednesday, after it said it managed to return to profit and is now more than two thirds of the way to achieving its SA debt reduction target.
The group has battled with a corporate accounting scandal and a debt mountain that has forced it to sell assets, but said on Thursday it has now put R5.6bn towards its target of reducing debt by R8.1bn, with more to follow.
Cost containment, a weaker rand, improved exports and better prices all helped achieve a R900m rise in operating profit in the six months to end-September, the group said, a 70% increase year on year.
This was mostly due to a turnaround in its SA sugar business, which saw strong local market and export sales, and saw an operating profit swing of R500m.
In afternoon trade on Wednesday, the group’s share had surged 22.14% to R9.38, on track for its best day in almost eight months. The group’s share has still lost about 29% so far in 2020 and more than 90% in the past three years.
Tongaat was once one of the country’s most recognisable blue chip stocks, but an accounting scandal in 2019 left the group battling for survival.
An investigation by PwC into bookkeeping practices at Tongaat found that the company had, among other things, overstated sugar sales and the value of assets. The company has launched a civil suit to recover bonuses and benefits of 10 executives it alleges played a role in the misleading financial statements, and has also filed criminal charges in SA and Zimbabwe.
In a trading update on Wednesday, Tongaat said it expects to report headline earnings of between R158m and R189m to end-September, a profit swing of up to R504m from the loss it saw previously.
The results, however, include the contribution of since disposed businesses, including the sale of its starch and glucose unit to Barloworld, the proceeds of which were received in October, with that transaction almost derailed by the Covid-19 pandemic.
In the group’s SA sugar business — which accounted for over a third of revenue to end-March — improvements in production and productivity were further supported by notably stronger local market sales, while export sales benefited from the weaker exchange rate and improved pricing, particularly in refined sugar markets, Tongaat said. In the prior comparative period, this unit generated an operating loss of R283m.
“Together with a variety of successful cost saving initiatives, this culminated in a convincing profit for the current six months, relative to a loss in the prior period,” Tongaat said.
The group has about a quarter of the SA sugar market, and 35% of its white sugar market.
Group total net debt fell about 7.6% to R10.9bn in the period, while in SA net debt fell R600m to R10.4bn.
After year end, the group received R4.5bn in proceeds from the sale of its starch and glucose business and, so far, the group has concluded transactions worth R6.4bn that will also be used to reduce its debt.
The initial proceeds of the R375m disposal of its Tambankulu sugarcane estate in Eswatini were received at the beginning of December.
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