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Chris Logan: Tongaat’s turnaround tale turns bitter

Tongaat’s outcomes were extremely anticipated given it announced a proposed rights anguish most effective weeks ago. Tongaat additionally issued earnings guidance with urged super losses owing to operational mishaps which personal since been handled. No topic this, the percentage set has lost more floor, down as mighty as 15% intraday. The size of the rights anguish, which is going to be within the situation of R4bn, will be spherical four instances the scale of primarily the most up-to-date industry. The capital raise will be extremely dilutive and may per chance well also provide a possibility for set spanking sleek investors as soon as the mud settles. Opportune Investments founder Chris Logan – one in all the few analysts on the JSE who covers Tongaat in any detail following their accounting irregularities – talked about that outcomes did no longer paint an even characterize. The operational complications personal supposedly been sorted out and personal charge the sugar refiner somewhat diverse of hundreds of hundreds in lost sales. Tongaat’s land, valued at billions of rands on its books, can not entice shoppers. It has been a routine anguish over the outdated couple of years and locations in quiz whether the worth attributed to the land on Tongaat’s books is a suitable reflection of the market set. Justin Rowe-Roberts

Tongaat Media Commentary

Salient components

  • Persevered development with the industry turnaround scheme
  • Real native sugar inquire of across all geographies and market share gains
  • Ongoing improvements in ESG
  • Rep finance prices down 50% on lowered debt and favourable alternate charge movements
  • Debt refinancing agreements concluded in South Africa and Mozambique
  • As a lot as R4bn equity capital raise initiated and partial underwriting of R2bn for rights provide secured
  • Dividends and administration expenses of R140m got from Zimbabwe

The financial outcomes personal been impacted by the following:

– Lower raw sugar production

– Land sales delayed by civil riots

– Zimbabwe hyperinflation dynamics

– Restatements coming up from correction of prior interval errors

– R158m impact of civil unrest on earnings of the South African sugar operation

– Community taxation at an efficient 97% tax charge as a outcome of deferred tax on losses now no longer recognised

– Partial contribution from the disposed of starch and glucose, Namibia and Eswatini operations within the comparative interval

Community financial outcomes (along with the discontinued starch and glucose operation)

  • Classic loss per share of 174c (September 2020: earnings per share of 214c)
  • Headline loss per share of 188c (September 2020: headline earnings per share of 178c)

Community financial outcomes from persevering with operations

  • Revenue up 5% to R8.5bn (September 2020: R8.1bn)
  • Running income down 23% to R1.3bn (September 2020: R1.7 bn)
  • Hyperinflationary salvage financial lack of R110m (September 2020: lack of R71m)
  • Classic lack of R234m (September 2020: earnings of R108m)
  • Classic loss per share of 174c (September 2020: earnings per share of 80c)
  • Headline lack of R254m (September 2020: earnings of R59m)
  • Headline loss per share of 188c (September 2020: headline earnings per share of 44c)
  • Segmental cash flows of R958m (September 2020: R1.4bn)
  • No dividend was declared in primarily the most up-to-date interval (September 2020: Rnil)

Real development remains to be made within the implementation of the turnaround scheme and in restoring the Community to a sustainable enhance direction. To boot to to the implementation of a range of initiatives to beef up operational efficiency and beef up governance, the Community has considerably lowered its debt burden and improved cash drag along with the glide, successfully repatriated dividends from Zimbabwe, invested in folks and processes and bolstered its focal point on ESG over the previous two years. A 5-365 days capital programme has additionally been initiated to shield and beef up all operations. More currently, the refinance of the South African debt providers and products has been concluded, an equity capital raise was initiated and a partial underwriting of R2bn for the rights provide was secured.

The Mozambique sugar operations delivered a intellectual outcome, with strong enhance in operating income on the back of sturdy native sales. The Zimbabwe sugar operations benefitted from buoyant native sales nevertheless were materially impacted by the implications of hyperinflation. The South African sugar operations experienced a very tough six months compounded by breakdowns at the three raw sugar mills, the unrest in KwaZulu-Natal throughout July 2021 and the challenges experienced in processing sugarcane that arose from the unrest-associated arson. Covid-19 associated impacts, civil riots and a faded economic system proceed to weigh on the income and earnings of the property industry.

Monetary efficiency in primarily the most up-to-date interval is especially skewed by hyperinflation, the disposal of the Namibian and Eswatini operations, which make contributions to the comparative outcomes, as successfully as restatements of sure prior 365 days numbers.

Outlook

We are going to proceed to firmly re-put a convention of operational excellence, minimize debt, and restore self perception in Tongaat Hulett. In the immediate interval of time, this would per chance well also personal focused on the conclusion of a winning rights provide, which is a key step in securing the intention in which forward for the Community.

With the sugar season drawing to a shut, stout 365 days sugar production for the Community is expected to be between 8% and 10% below that of the prior 365 days. Our focal point for the relaxation of the 365 days will be to ensure a upright crop for the subsequent season, closing out primarily the most up-to-date season and making ready for the subsequent season from a milling standpoint, and persevering with with the improvements to revive the South African refinery to ancient production ranges.

In Zimbabwe and Mozambique, water safety for diverse seasons coming up from the stout dam ranges will beef up improved sugarcane yields and elevated cane provide to the mills, thereby rising operating efficiencies and worth competitiveness in these areas. In South Africa, there is an intensified pressure to reinvest within the asset sinister of the sugar industry to beef up the operational efficiency and maximise both efficiencies and economies of scale. We think that the property portfolio continues to shield indubitably intensive set for the Community. Efforts to shut out legacy land pattern projects, finalise ancient land sales and kind out legacy infrastructure commitments proceed to fetch traction.

We set a matter to that lower debt ranges will further merit finance prices in 2022. Cash generation, cutting back debt to a sustainable stage, liquidity administration, and the continuing overview of the Community’s capital structure, stay as priorities.

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