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TONGAAT HULETT LIMITED - Interim Results for the six months ended 30 September 2018

09 November 2018 - 14:58 PM
TON
Interim Results for the six months ended 30 September 2018

Tongaat Hulett Limited 
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541


INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018


SALIENT FEATURES

- Revenue increased 9% to R8,808 billion (2017: R8,118 billion)
- Operating profit decreased 64% to R530 million 
   (2017: R1,471 billion)
- Sugar production increased by 13% to 954 000 tons 
   (2017: 848 000 tons)
- Major land transactions remain under negotiation
- Sugar imports into South Africa declining after increased 
   duty protection implemented in August 2018
- Headline loss of R87 million (2017: headline earnings 
   of R661 million)
- Operating cash inflow after working capital of R183 million 
   (2017: R53 million outflow)


COMMENTARY

Tongaat Hulett encountered significant challenges during the six 
months ended 30 September 2018. Operating profit for the period 
of R530 million was 64% below the R1,471 billion earned in the 
six months ended 30 September 2017 (the comparative period). 
In the land conversion and development activities, the major 
transactions under negotiation for the period were not concluded 
by 30 September 2018. Operating profit from the starch and 
glucose operation benefitted from lower maize costs. The 
difficult local market conditions experienced by the sugar 
operations in South Africa and Mozambique during the second 
half of 2017/18 continued into the first half of 2018/19, with 
a resultant negative impact on both revenue and cane valuations. 

The sugar operations recorded a combined operating profit of 
R1,138 billion (2017: R1,308 billion), before cane valuations. 
Sugar production for the six month period increased to 
954 000 tons (2017: 848 000 tons), including the raw sugar 
equivalent production in Eswatini (formerly Swaziland). Revenue 
from the higher production was offset by the lower world market 
raw sugar price, which was on average 22% below the comparative 
period. The charge against operating profit of R796 million 
(2017: R473 million) in respect of cane valuations was 
R323 million higher than the comparative period, to which 
Mozambique and South Africa contributed R172 million and 
R130 million respectively. In Mozambique, the movement in 
cane valuations was attributable to lower domestic prices and 
a reduction in the business cane area due to the expiry of 
some lease arrangements with private farmers. In South Africa, 
the movement in cane valuations arose from lower domestic 
prices and a lower cane age profile as the harvest programme 
was further advanced than the comparative period. After 
adjusting for the impact of cane valuations, operating profit 
amounted to R342 million (2017: R835 million).

The Zimbabwe sugar operations generated operating profit of 
R537 million (2017: R580 million), before cane valuations. 
Increased water availability and the accelerated sugarcane 
root replanting programme have improved cane yields and 
resulted in sugar production of 306 000 tons (2017: 280 000 tons). 
Strong growth in local market sugar sales continued. Liquidity 
constraints in the local market have resulted in considerable 
cost-push inflationary pressure. After adjusting for cane 
valuations, operating profit was R319 million (2017: R358 million).

The South African sugar operations recorded operating profit of 
R205 million (2017: R273 million), before cane valuations. 
Improvements in cane yields, quality and milling performance 
increased sugar production to 431 000 tons (2017: 380 000 tons). 
In response to competition from imported sugar, local prices were 
reduced both in July 2017 and March 2018 by a cumulative 22%, 
resulting in lower margins relative to the comparative period. 
After extensive engagement with the International Trade 
Administration Commission and the South African government, the 
US dollar-based reference price, used in the calculation of the 
import duty, was increased in August 2018 from US$566 to US$680 
per ton. In addition to the higher duty protection, subsequent 
reviews and adjustments to the tariff have been implemented 
timeously. The above interventions resulted in a decline in the 
volume of imported sugar entering the local market over the past 
six months to 112 000 tons (2017: 301 000 tons). Local prices 
increased in September 2018 returning to pre-July 2017 levels. 
Local sales volumes were negatively affected by the continued 
availability of imported sugar in the market. In August 2018 a 
sizeable "buy-in" ahead of the price increase occurred. After 
adjusting for cane valuations, operating profit was R13 million 
(2017: R211 million).

The Mozambique sugar operations recorded operating profit of 
R341 million (2017: R394 million), before cane valuations. Sugar 
production increased to 176 000 tons (2017: 153 000 tons) due to 
the earlier commencement of the milling season. The stronger 
Metical resulted in a higher local price of sugar in Mozambique 
than in neighbouring markets in US dollar terms, creating price 
arbitrage opportunities. Local market sales volumes were below 
the comparative period. Realisations from export sales, which 
represent more than 50% of the industry's production, were 
impacted by low international prices and the stronger currency. 
The construction of the 90 000 ton sugar refinery at the Xinavane 
sugar mill was completed within budget. After adjusting for cane 
valuations, operating profit was R7 million (2017: R232 million).

The starch and glucose operation achieved an operating profit of 
R300 million (2017: R240 million). Margins continued to benefit 
from lower maize prices that traded closer to export parity levels 
after the prior season record crop and a surplus crop in the 
current season reflecting a recovery from the drought-affected 
maize prices experienced in the comparative period. Increased 
co-product realisations also contributed to improved margins. 
The benefit of new market development initiatives and the ongoing 
success in displacing imports, was masked by weaker local demand, 
particularly in the alcoholic beverage sector, and by customer 
production constraints within the coffee creamer sector. Overall, 
domestic volumes declined by 7% relative to the comparative period. 
The improved competitiveness of local maize prices supported an 
increase in export volumes. The ongoing focus on reducing costs 
and improving operational efficiencies continued to yield positive 
results. 

Land conversion and development activities recorded an operating 
loss of R30 million (2017: operating profit of R441 million). 
Negotiations around some transactions in the period were not 
concluded and substantial commercial engagements are continuing 
with a number of prospects. Revenue for the period was generated 
from the sale of 0,6 developable hectares in Bridge City 
(2017: 68 developable hectares across various areas).

Tongaat Hulett's operating cash flow after working capital 
improved by R236 million to R183 million (2017: R53 million 
outflow). Proceeds from previous land sales totalling R112 million 
were collected by 30 September 2018, with a further R630 million 
being received in October 2018. Tongaat Hulett's working capital 
requirements reduced by R705 million, with the South African 
sugar operations benefitting from the sizeable "buy-in" ahead 
of the September 2018 price increase. New capital expenditure of 
R343 million comprised R325 million in respect of the refinery 
project in Mozambique and R18 million on completing the energy 
efficiency project at the refinery in Durban. Expenditure on 
ongoing capital requirements and sugarcane root replanting 
totalled R595 million (2017: R709 million). During the period, 
capital expenditure was limited to essential replacement items 
only. The sugarcane root replanting programme, aside from 
normalising after the drought, took into account current market 
fundamentals in determining the required pace of replanting. 
Finance costs of R477 million (2017: R413 million) were 
commensurate with the level of borrowings over the period. 
Overall, the period reflected a net cash outflow after dividends 
of R1,601 billion (2017: R1,683 billion). 

Tongaat Hulett's net debt at 30 September 2018 was R7,754 billion 
(2017: R6,514 billion) with headroom on its borrowings facilities 
of R1,8 billion. The capital structure of each business continues 
to be reviewed and over the past six months, the South African 
borrowings benefitted from the receipt of R362 million from the 
Mozambique sugar operations. A dividend payment of R114 million 
was received from Triangle in Zimbabwe, bringing the total 
dividend received since the beginning of September 2017 to 
R372 million. A process to remit a further dividend from Zimbabwe 
is currently underway.

Taking the above into account, Tongaat Hulett recorded a headline 
loss for the period of R87 million, being a decrease of 113% 
against the comparative period. After consideration of Tongaat 
Hulett's current financial position, the Board has deemed it 
appropriate to not declare an interim dividend (2017: 100 cents 
per share).

OUTLOOK

Sugar - To focus on generating cash flow and increasing returns on 
capital employed

The challenges facing the South African and Mozambique sugar 
operations are receiving urgent attention.

Tongaat Hulett's existing sugarcane footprint, under normal 
growing conditions and on completion of foreseeable planting 
partnerships, has the potential to produce 1 600 000 tons of 
sugar. Total sugar production in 2018/19 is estimated to be 
between 1 311 000 tons and 1 352 000 tons, compared to the 
1 171 000 tons produced in 2017/18. Sugar production in 2019/20 
is expected to exceed 1 400 000 tons, underpinned by the prospect 
of normal summer rainfall and improvements in cane yields. All 
sugar operations continue to focus on reducing operating costs 
through increased production efficiency. 

In Zimbabwe, the Tugwi-Mukosi dam has secured the availability 
of bulk water for irrigation for the next two years. The 
additional production will support higher export sales into 
regional deficit markets at premium prices. Recently, a 
favourable outcome was reached with the government providing 
Tongaat Hulett with security of tenure over its assets in 
Zimbabwe. Tongaat Hulett's outlook on its Zimbabwe operations 
remains positive.

In South Africa, indications are that imported sugar is working 
itself out of the market although the extent of the "buy-in" at 
the lower price may slow sales volumes in the second half of the
year. Consequently, export sales into world price related markets 
will increase. A return to the sugar industry's normalised local 
sales levels of 1 650 000 tons is expected in 2019/20. The higher 
duty protection will assist in rebuilding margins of both growers 
and millers, the full benefit of which, together with further 
growth in sugar production, will be reflected in the 2019/20 
financial results.

In Mozambique, robust measures are being taken to stem the flow 
of illegal sugar imports from the region in order to recover 
local market share. The commissioning of the Xinavane refinery 
will be completed by mid-November 2018 and will deliver a 
step-change improvement to the sales mix in Mozambique. The 
refined sugar will replace imported white sugar, satisfy the 
country's growing industrial demand and enhance returns from the 
domestic price premium relative to the realisations from export 
markets. An estimated 7 000 tons of refined sugar will be produced 
in the second half of 2018/19, with the full year benefit to be 
realised in 2019/20. Good progress continues to be made with 
sales volumes into regional deficit markets.

Starch and Glucose - Favourable maize outlook and sustained 
profit margins

The starch and glucose operation remains well positioned to grow 
sales volumes and enhance its product and market mix, underpinned 
by available production capacity, ongoing improvements in 
operating efficiencies and continued market development.

In the current economic conditions, some recovery in consumer 
demand is expected in the second half of the financial year. 
Sales volumes will benefit from the resolution of a major 
customer's production constraints in the coffee creamer sector, 
the commissioning of increased capacity in powdered glucose, the 
continuation of the import replacement strategy and new business 
development initiatives. Further growth in export markets is 
anticipated, supported by a competitive maize price and a weaker 
currency.

The current season maize crop of 12,9 million tons, combined 
with 3,7 million tons of carry-over stock from the previous season, 
should see maize prices remain competitive and close to export 
parity levels, thereby sustaining margins. Co-product revenue is 
expected to increase in the second half of the year, supported by 
market fundamentals.

Land Conversion and Development - Set to unlock further value 
from a solid platform

Tongaat Hulett has a unique portfolio of prime land located around 
Durban, which is one of South Africa's primary growth corridors. 
The land conversion and development activities have transitioned 
this portfolio into a solid platform for value creation for many 
stakeholders.

The registration of transfer of land already sold will generate 
considerable cash inflows. Proceeds totalling R630 million were 
collected during October 2018, leaving land debtors of 
R1,934 billion, most of which is expected to be collected over 
the next twelve months, as administrative, planning and other 
conditions are fulfilled.

The opening of new development areas around King Shaka 
International Airport, Ballito and Ntshongweni (west of Durban), 
is expanding the geographic market spread beyond the currently 
dominant greater Umhlanga region. 

Land released from agriculture totals 3 566 developable hectares. 
Development and commercial focus is concentrated on 621 developable 
hectares, representing 2,8 million square metres of new building 
floor area, of which 189 hectares are shovel ready and can 
accommodate 1,3 million square metres of new building floor area. 

Conclusion

Tongaat Hulett recognises the imperative to restore returns for 
its shareholders to an acceptable level, improve cash generation 
and reduce debt levels. Therefore, the business is accelerating 
a review process across all its operations with the objective of 
unlocking value.

In light of the current debt levels, tight cash flow management 
will continue to receive focussed attention across the business. 
Various initiatives are in progress to reduce working capital 
requirements, limit capital expenditure and improve operating 
cash flows. Tongaat Hulett expects an improved cash flow 
performance in the second half of the financial year. The 
unwinding of Tongaat Hulett's black economic empowerment 
structure is expected to be completed by 31 January 2019.

Tongaat Hulett remains focussed on improving its financial 
performance, notwithstanding the current operating environment, 
with progress on establishing a platform for earnings growth 
beyond 2018/19. 


For and on behalf of the Board

Bahle Sibisi                 Sydney Mtsambiwa
Chairman                     Interim Chief Executive Officer  

Amanzimnyama
Tongaat, KwaZulu-Natal

8 November 2018


INCOME STATEMENT

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

Revenue                         8 808         8 118        16 982

Operating profit                  530         1 471         1 958
Net financing
 costs (note 1)                  (477)         (413)         (878)

Profit before tax                  53         1 058         1 080

Tax (note 2)                      (57)         (267)         (249)

(Loss)/profit for
 the period                        (4)          791           831

(Loss)/profit
 attributable to:
  Shareholders of 
  Tongaat Hulett                 (110)          724           713
  Non-controlling interests       106            67           118
                                   (4)          791           831

(Loss)/earnings
 per share (cents)
  Basic                         (93,7)        628,5         618,0
  Diluted                       (93,7)        628,5         618,0


Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

Headline (loss)/
 earnings attributable to
  Tongaat Hulett
  shareholders (note 3)           (87)          661           617

Headline (loss)/
 earnings per share (cents)
  Basic                         (74,1)        573,8         534,8
  Diluted                       (74,1)        573,8         534,8

Dividend per share (cents)          0         100,0         160,0

Currency conversion
  Rand/US dollar closing        14,21         13,46         11,89
  Rand/US dollar average        13,39         13,21         13,00
  Rand/Metical average           0,22          0,21          0,21
  Rand/Euro average             15,73         15,03         15,15
  US dollar/Euro average         1,18          1,14          1,17


SEGMENTAL ANALYSIS

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018


REVENUE

Sugar
  Zimbabwe                      2 584         2 063         3 918
  Eswatini                        170           162           210
  Mozambique                    1 108         1 191         1 584
  South Africa                  3 046         2 004         6 332
Sugar operations - total        6 908         5 420        12 044
Starch operations               1 872         1 993         3 913
Land Conversion and
 Developments                      28           705         1 025

Consolidated total              8 808         8 118        16 982

The adoption of IFRS 15 Revenue from Contracts with Customers in the 
current period has resulted in a net increase in revenue of 
R558 million. In the sugar operations, revenue in South Africa 
increased by R621 million, in Mozambique by R12 million and decreased 
by R101 million in Zimbabwe and in the land conversion and 
development operations it increased by R26 million. The prior 
periods were prepared under the previous revenue recognition 
standard, IAS 18 Revenue.


OPERATING PROFIT

Sugar
  Zimbabwe                        319           358           563
  Eswatini                          3            34            29
  Mozambique                        7           232           159
  South Africa                     13           211            86
Sugar operations - total          342           835           837
Starch operations                 300           240           572
Land Conversion and 
 Developments                     (30)          441           661
Centrally accounted and
 consolidation items              (46)          (39)          (59)
Other capital items               (31)                        (39)
BEE IFRS 2 charge and
 transaction costs                 (5)           (6)          (14)

Consolidated total                530         1 471         1 958


ANALYSIS OF SUGAR OPERATING PROFIT

Sugar operations -
 before cane valuations         1 138         1 308           467
  Zimbabwe                        537           580           363
  Eswatini                         55            61             4
  Mozambique                      341           394            71
  South Africa                    205           273            29

Cane valuations -
 income statement effect         (796)         (473)          370
  Zimbabwe                       (218)         (222)          200
  Eswatini                        (52)          (27)           25
  Mozambique                     (334)         (162)           88
  South Africa                   (192)          (62)           57

Sugar operations -
 after cane valuations            342           835           837
  Zimbabwe                        319           358           563
  Eswatini                          3            34            29
  Mozambique                        7           232           159
  South Africa                     13           211            86


STATEMENT OF FINANCIAL POSITION

Condensed consolidated      Unaudited     Unaudited        Audited
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

ASSETS

Non-current assets
 Property, plant
  and equipment                15 906        14 184         13 922
 Long-term receivable             693           649            681
 Goodwill                         407           388            346
 Intangible assets                476           409            447
 Investments                       25            30             25
                               17 507        15 660         15 421

Current assets                 17 218        17 002         13 694
 Inventories                    6 886         6 139          3 072
 Growing crops (note 4)         2 290         2 137          2 755
 Trade and other receivables    5 092         5 137          5 183
 Tax                               42                           22
 Cash and cash equivalents      2 908         3 589          2 662

TOTAL ASSETS                   34 725        32 662         29 115

EQUITY AND LIABILITIES

Capital and reserves
Share capital                     135           135           135
Share premium                   1 544         1 544         1 544
BEE held
 consolidation shares            (635)         (621)         (623)
Retained income                 9 064         9 525         9 401
Other reserves                  1 763         1 095          (286)
Shareholders' interest         11 871        11 678        10 171

Non-controlling interests       2 197         2 038         1 838
Equity                         14 068        13 716        12 009

Non-current liabilities         8 190         8 408         8 215
  Deferred tax                  2 324         2 483         2 376
  Long-term borrowings          5 023         5 127         5 048
  Provisions                      843           798           791

Current liabilities            12 467        10 538         8 891
  Trade and other
   payables (note 5)            6 099         4 682         4 165
  Short-term borrowings         5 639         4 976         4 077
  Non-recourse equity-settled
   BEE borrowings                 615           602           603
  Tax                             114           278            46

TOTAL EQUITY AND LIABILITIES   34 725        32 662        29 115


STATEMENT OF OTHER COMPREHENSIVE INCOME

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

(Loss)/profit for the period      (4)          791            831

Other comprehensive 
 income/(loss)                  2 357          463         (1 163)

 Items that will not
  be reclassified to
  profit or loss:
   Foreign currency
    translation                 2 347          469         (1 155)
   Actuarial loss on
    post-retirement
    benefits                                                  (10)
   Tax on actuarial loss                                        2

 Items that may be
  reclassified
  subsequently to
  profit or loss:
   Hedging reserve                 13            (8)
   Tax on movement in
    hedging reserve                (3)            2


Total comprehensive
 income/(loss) for 
 the period                     2 353         1 254          (332)


Total comprehensive
 income/(loss) attributable to:
  Shareholders of
   Tongaat Hulett               1 924         1 161          (237)
  Non-controlling interests       429            93           (95)
                                2 353         1 254          (332)


STATEMENT OF CHANGES IN EQUITY

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

Balance at beginning
 of period                     10 171        10 781        10 781
Adjustment on initial
 adoption of IFRS 15
 (note 11)                       (159)

Total comprehensive
 income/(loss) for the period   1 924         1 161          (237)
  (Loss)/profit for
   the period                    (110)          724           706
  Movement in
   hedging reserve                 10            (6)
  Foreign currency translation  2 024           443          (943)

Dividends paid                    (66)         (220)         (330)
BEE share-based payment charge      2             5            12
Share-based payment charge         26             8            10
Settlement of share-based
 payment awards                   (27)          (57)          (65)

Shareholders' interest         11 871        11 678        10 171

Non-controlling interests       2 197         2 038         1 838
  Balance at beginning
   of period                    1 838         1 957         1 957
  Adjustment on initial
   adoption of IFRS 15
   (note 11)                      (23)

  Total comprehensive
   income/(loss) for
   the period                     429            93           (95)
    Profit for the period         106            67           117
    Foreign currency
     translation                  323            26          (212)
  Dividends accrued               (26)
  Dividends paid                  (21)          (12)          (24)

Equity                         14 068        13 716        12 009


STATEMENT OF CASH FLOWS

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

Operating profit                  530         1 471         1 958
Loss/(surplus) on
 disposal of property,
 plant and equipment               32           (51)         (106)
Depreciation                      550           517         1 001
Growing crops valuation
 and other non-cash items         866           510          (271)

Operating cash flow             1 978         2 447         2 582

Change in working capital      (1 795)       (2 500)         (307)

Cash flow from operations         183           (53)        2 275

Tax payments                     (282)         (218)         (354)
Net financing costs              (477)         (413)         (878)

Cash flow from operating
 activities                      (576)         (684)        1 043

Expenditure on property,
 plant and equipment:
  New                            (343)         (109)         (876)
  Replacement                    (355)         (218)         (298)
  Cane roots                     (226)         (348)         (887)
Major plant overhaul
 cost changes                                   (90)           (1)
Intangible assets                 (14)          (53)         (106)
Proceeds on disposal of
 property, plant and
 equipment                                       51           155

Net cash flow before
 dividends and
 financing activities          (1 514)       (1 451)         (970)

Dividends paid                    (87)         (232)         (354)

Net cash flow before
 financing activities          (1 601)       (1 683)       (1 324)

Borrowings raised               1 473         2 568         1 611
Non-recourse equity-settled
 BEE borrowings                    12           (21)          (19)
Settlement of
 share-based payment awards       (27)          (57)          (65)

Net (decrease)/increase in
 cash and cash equivalents       (143)          807           203

Balance at beginning
 of period                      2 662         2 741         2 741
Currency alignment                389            41          (282)
Cash and cash equivalents
 at end of period               2 908         3 589         2 662


NOTES

Condensed consolidated      Unaudited     Unaudited        Audited
                          6 months to   6 months to   12 months to
                         30 September  30 September       31 March
Rmillion                         2018          2017           2018

1. Net financing costs
    Interest paid                (546)         (497)       (1 049)
    Interest capitalised           21            21            45
    Interest received              48            63           126
                                 (477)         (413)         (878)

2. Tax
     Normal                      (317)         (386)         (199)
     Deferred                     296           129           (25)
     Withholding tax              (11)          (10)          (25)
     Rate change                  (25)
                                  (57)         (267)         (249)

During the period, the agricultural tax rate in Mozambique 
increased from 10% to 32% due to a concession previously granted
not being extended. Representations are being made to government
to reinstate the 10% tax rate for agriculture. 

3. Headline (loss)/earnings
    (Loss)/profit attributable 
     to shareholders              (110)          724           713
    Adjusted for:
      Capital loss/(surplus)
       on disposal of land,
       cane roots and buildings    32           (52)          (27)
      Loss on disposal
       of plant and equipment                                   3
      Tax on the above items       (9)          (11)          (71)
      Non-controlling interests                                (1)
                                   87           661           617

4. Number of shares (000)
   In issue                   135 113       135 113       135 113
   Weighted average (basic)   117 441       115 189       115 372
   Weighted average (diluted) 117 441       115 189       115 372

5. Growing crops
Growing crops, comprising standing cane, is measured at fair value which 
is determined using an estimate of cane yields and prices which are 
unobservable inputs and, in accordance with IFRS, categorised as 
level 3 under the fair value hierarchy. Changes in fair value are 
recognised in profit or loss. A change in yield of one ton per 
hectare on the estimated yield of 80 tons cane per hectare 
(30 September 2017: 75 tons per hectare and 
31 March 2018: 81 tons per hectare) would result in a 
R28 million (30 September 2017: R28 million and 
31 March 2018: R34 million) change in fair value while a change 
of one percent in the cane price would result in a R23 million 
(30 September 2017: R25 million and 31 March 2018: R28 million) 
change in fair value.

6. Trade and other payables
Trade and other payables includes an interest bearing maize obligation 
of R603 million (30 September 2017: R687 million and 
31 March 2018: R486 million).

7. Capital expenditure commitments
     Contracted                   129           282           398
     Approved                     101           708           240
                                  230           990           638

8. Operating lease commitments     66            82            60

9. Guarantees and
    contingent liabilities        142            79            91

10. Basis of preparation
The condensed consolidated financial statements for the six months 
ended 30 September 2018 have been prepared in accordance with and 
containing the information required by IAS 34 Interim Financial 
Reporting, the SAICA Financial Reporting Guides as issued by the 
Accounting Practices Committee, the Financial Pronouncements as 
issued by the Financial Reporting Standards Council, and comply 
with the Companies Act of South Africa and the JSE Limited Listing 
Requirements. These condensed consolidated financial statements 
do not include the fair value disclosures for financial instruments 
as required by IAS 34 paragraph 16A(j), which are available on the 
company's website, at the registered office or on request. The 
directors take full responsibility for these condensed consolidated 
financial statements, which have been prepared under the supervision 
of the Interim Chief Financial Officer, Mr RD Aitken CA(SA). The 
results have not been audited, and any reference to future 
financial performance has not been reviewed or reported on, by the 
company's auditor.

11. Accounting policies

The accounting policies applied in the preparation of the financial 
statements for the six months ended 30 September 2018 comply with 
International Financial Reporting Standards ("IFRS") and are 
consistent, in all material respects, with those applied for the 
financial year ended 31 March 2018, except for the adoption of 
IFRS 9 Financial Instruments ("IFRS 9") and IFRS 15 Revenue from 
Contracts with Customers ("IFRS 15") as detailed below. The other 
new and revised accounting pronouncements, effective from 
1 April 2018, were adopted by Tongaat Hulett with no impact 
on the financial results.

Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial 
Instruments: Recognition and Measurement ("IAS 39") and sets out 
the new requirements for the classification and measurement of 
financial instruments, introduces an expected credit loss model 
for the measurement of impairment losses and establishes a closer 
alignment between hedge accounting and risk management practices.

The application of the requirements of IFRS 9 to Tongaat Hulett 
is as follows:

- Classification and measurement requirements: There is no impact 
on Tongaat Hulett.

- Impairment requirements:
In terms of IAS 39, financial assets (e.g. trade receivables, 
contract assets, lease receivables, loan commitments) were impaired 
using an incurred loss model when there was objective evidence of 
default. Under IFRS 9, an impairment is based on an expected credit 
loss ("ECL") model which takes into account historical credit loss 
experience adjusted for current and future economic conditions. 
The ECL to be recognised is based on the expected losses that may 
arise within the next twelve months. If there is a significant increase 
in credit risk, or if the company elects to do so, the ECL is based on 
the lifetime of the financial asset.

As Tongaat Hulett's sugar and starch operations are short term in 
nature (e.g. terms of 14 days in the South African sugar operations 
and 30 days in the starch operation) the impact of IFRS 9 is 
insignificant. In the developments operation, the financial assets 
are mainly secured by the value of the serviced land as reflected in 
the transaction price. The registration of the property is delayed 
as a protection mechanism for the recovery of the full amount due. 
Based on the above, no impairment adjustments have been processed 
for the period.

- Hedge accounting requirements:
Hedge accounting is applied in the starch operation to account for 
maize futures. Tongaat Hulett has elected to adopt the transitional 
provisions of IFRS 9 which allow a choice to continue with the hedge 
accounting requirements of IAS 39 rather than adopting the new IFRS 9 
requirements.

The adoption of IFRS 9 has had no material impact on Tongaat Hulett's 
earnings and no retrospective adjustments have been made to the 
financial statements.

Revenue Recognition

IFRS 15: Revenue from Contracts with Customers replaces 
all existing IFRS revenue requirements and establishes a single, 
principles-based model to account for revenue arising from contracts 
with customers. Under IFRS 15, revenue is recognised as Tongaat Hulett 
satisfies performance obligations and transfers control of goods or 
services to its customers, compared with the previous accounting 
standard that recognised revenue based on an assessment of the risks 
and rewards of ownership. 

The measurement of revenue is determined based on the amount to which 
Tongaat Hulett expects to be entitled in the exchange for the goods 
or services and is allocated to each specific performance obligation 
in the contract. Depending on whether certain criteria are met, revenue 
is recognised either over time or at a point in time, as and when the 
performance obligations are met, and control of the goods or services 
is transferred to the customer.

IFRS 15 affects Tongaat Hulett's commercial transactions within its 
land conversion and development activities as well as certain of the 
customary transactions within the sugar operations where sugar is 
sold to industry (or similar) bodies. The impact of adopting IFRS 15 
is detailed below: 

- Land Conversion and Development:
A commercial land transaction involves the conclusion of an 
unconditional, binding contract which transfers the risks and rewards 
of ownership of the land to the purchaser and conveys on Tongaat Hulett 
an obligation to provide the necessary services infrastructure to the 
site. In terms of the previous accounting standard, revenue on a 
commercial land transaction was recognised as a single transaction at 
the time the contract became unconditional.

Under IFRS 15, the commercial land transaction is split into two 
distinct performance obligations with revenue being apportioned 
between them.

- Sale of the land: 
The revenue attributed to the sale of land is recognised at the point 
in time when the relevant agreement becomes unconditional and binding 
on the purchaser and the purchaser can exercise effective control 
over the land.

- Provision of services infrastructure:
The revenue attributed to the necessary services infrastructure, is 
deferred and recognised over the period the obligation is fulfilled, 
using the percentage completion method with reference to the services 
costs incurred relative to the total estimated services costs.

- South African sugar operations:
In March each year, in terms of the sugar industry agreement, the 
South African Sugar Association ("SASA") is obliged to purchase all 
unsold sugar stocks designated for the local market to determine the 
final sucrose price for the season. Revenue was previously recognised 
at that point in time as ownership of the sugar had legally transferred 
to SASA and payment had been received.

Applying the IFRS 15 transfer of control requirements, since the South 
African sugar operations retain control over the physical sugar stocks 
and have the responsibility to market and sell the sugar on behalf of SASA, 
revenue is not recognised under IFRS 15 until the sugar is delivered to 
the end-customer.

- Zimbabwe sugar operations
In September and March each year, a third-party commodity trader purchases 
a bulk volume of sugar designated for the local market. Revenue was 
previously recognised at those points in time as ownership of the sugar 
had legally transferred to the commodity trader and payment had been received.

Applying the IFRS 15 transfer of control requirements, the Zimbabwe sugar 
operations retain control over the physical sugar stocks and have the 
responsibility to market and sell the sugar on behalf of the commodity 
trader, revenue is not recognised under IFRS 15 until the sugar is 
delivered to the end customer. 

- Mozambique sugar operations
As sugar is produced by the Mozambique sugar operations, it is sold to 
the Distribuidora Nacional de Acucar Limitada ("DNA"), a body 
established to market, sell and distribute the industry's sugar 
production into local and certain preferential export markets. Sugar 
that is surplus to the DNA's requirements is repurchased by the 
Mozambique sugar operations, in proportion to their share of 
industry, for sale to other export markets. Revenue was previously 
recognised at the date of sale to the DNA as ownership of the sugar 
had legally transferred to the DNA and payment had been received.

Applying the IFRS 15 transfer of control requirements, since the 
Mozambique sugar operations retain responsibility to market, sell 
and distribute the surplus sugar, revenue from the sale of such surplus 
sugar is no longer recognised at the time of sale to the DNA, but 
rather when the sugar has subsequently been exported to the end-customer.

Tongaat Hulett has elected not to restate comparative information and, 
in terms of the transitional requirements of IFRS 15, has adopted the 
modified retrospective approach whereby the cumulative effect of 
initially applying the new standard has been recorded as an adjustment 
to the opening balance of equity at the date of initial application, 
being 1 April 2018. Comparative information has not been restated and 
is reported under the previous standard.

The effect of the adoption of IFRS 15 at 31 March 2018 on the 
statement of financial position would have been a decrease in 
equity of R182 million (Tongaat Hulett: R159 million and non-controlling
interests: R23 million) comprising of an increase in inventory
(i.e. sugar stocks) of R1,068 billion, an increase in trade and 
other payables (i.e. deferred revenue) of R1,195 billion, a decrease 
in trade and other receivables of R122 million and a decrease of 
R67 million in the deferred tax liability. 

12. Subsequent events
There were no material events between 30 September 2018 and the date 
of this report.


CORPORATE INFORMATION

Directorate: 
C B Sibisi (Chairman), S M Beesley, F Jakoet, J John, 
R P Kupara (Zimbabwean), T N Mgoduso, N Mjoli-Mncube, 
S G Pretorius, T A Salomao (Mozambican)

Company Secretary:
M A C Mahlari

Executive:
S D Mtsambiwa (Zimbabwean) (Interim Chief Executive Officer) 
and R D Aitken (Interim Chief Financial Officer)

Registered office: 
Amanzimnyama Hill Road, Tongaat, KwaZulu-Natal
P O Box 3, Tongaat 4400
Telephone: +27 32 439 4019

Transfer secretaries:
Computershare Investor Services (Pty) Limited
Telephone: +27 11 370 7700

Sponsor: 
Investec Bank Limited
Telephone: +27 11 286 7000

www.tongaat.com

e-mail: info@tongaat.com

9 November 2018

Date: 09/11/2018 03:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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