Tongaat slides after reporting headline loss
The group’s shares slump almost 12% before recovering slightly to close at R61.30
Shares in Tongaat Hulett, the sugar producer that drew sharp criticism earlier in 2018 after reporting profits that were well short of its own guidance, lost 6.1% on Friday after the company reported an interim headline loss.
The group’s shares slumped almost 12% in early trade before recovering slightly to close at R61.30. In November 2014, the stock was trading at more than R170.
Despite a 9% increase in revenue to R8.8bn, Tongaat said it made a headline loss of R87m in the six months to end-September, from headline earnings of R661m a year before.
Operating profits fell 64% to R530m.
Tongaat said major transactions in its land conversion and development business were not concluded during the period, while earnings were affected by “difficult local market conditions experienced by the sugar operations in SA and Mozambique”.
Opportune Investments CEO Chris Logan said the weak result “makes a mockery of the statement in the annual report that earnings are expected to increase”.
Tongaat’s debt continued to escalate “alarmingly” in the period, Logan said. Total borrowings increasing to R10.7bn from R9.1bn at the end of March.
“With its superb land holdings and very good starch operation, Tongaat should be a winner, but exceptionally poor capital allocation, and a skills-deficient board, has turned it into disaster for long-suffering shareholders,” Logan said.
Tongaat said that based on its current financial position, it has decided not to declare an interim dividend. It paid an interim dividend of 100c per share in 2017.
In May, Investec analyst Anthony Geard wrote a report calling for then-CEO Peter Staude to step down. This followed Tongaat’s “appalling” results for the year to March, in which headline earnings declined 37.2% to R617m.
While Investec later apologised for the report, Staude retired at the end of October. Sydney Mtsambiwa has taken over in an acting capacity.
In Friday’s statement, Tongaat said it “recognises the imperative to restore returns for its shareholders to an acceptable level, improve cash generation and reduce debt levels”.
As such, the business is “accelerating” a review of its operations “with the objective of unlocking value”.
Tongaat said it will focus on “tight cash flow management”, reducing working capital requirements, limiting capital expenditure and improve operating cash flows.
Cash flows are expected to improve in the second half of the financial year and the group aims to establish “a platform for earnings growth”.