Tongaat asks for R4bn injection
• For every R1 from operating cash flow, 80c goes to costs of financing
Embattled sugar producer Tongaat Hulett is seeking a R4bn cash injection from shareholders as it desperately seeks to reduce a mountain of debt that is equivalent to just more than three-quarters of its asset base.
Embattled sugar producer Tongaat Hulett is seeking a R4bn cash injection from shareholders as it desperately seeks to reduce a mountain of debt that is equivalent to just more than three-quarters of its asset base.
The debt is a burden on the company; of the R1.3bn net cash generated from operating activities for the latest full year, R1.1bn was for servicing debt.
At current debt levels, for every R1 generated from operating cash flow, 80c goes to cover the costs of financing.
Tongaat CEO Gavin Hudson, who joined the company in February 2019, said it plans to reduce debt by R8.1bn by 2021.
The capital raise, alongside cutting 8,000 jobs and sale of assets, are among the steps that the new management is taking to turn around the fortunes of the scandal-hit company whose debt has doubled to R11.4bn in the past six years.
A PwC forensic investigation has uncovered evidence that the company’s former executives had been involved in “irregular accounting”, prompting it to consider criminal and civil action against the implicated executives.
Those executives include former CEO Peter Staude, whose total remuneration for the seven months he worked in the 2019 financial year came to R15.67m, according to TongaatHulett’s 2019 financial statements.
“What we see is a poorly managed and underperforming business. [It is] a business that did not have the correct strategic direction and the correct operational processes. We had weak relationships with key stakeholders,” Hudson said at the release of the company’s results for the year to end-March 2019 on Tuesday.
PwC found that, among others, the company had overstated projected revenue, cane root and standing cane valuations, the value of capital work in progress, plant and machinery and sugar sales in Zimbabwe.
Former Tongaat shareholder
Chris Logan, of Opportune Investments said the restatement of R11.9bn “is huge” in relation to the R3.5bn to R4.5bn indicated in May 2019 and has resulted in Tongaat having negative equity of R2.97bn as at March 31 2019.
“Indeed if you look at the debt of R11.4bn the rights issue possibly looks light, but Tongaat was woefully mismanaged and under Hudson greatly enhanced efficiencies should kick in,” Logan said.
Hudson said other measures to improve the company’s financial position include reducing headcount by 8,000. Most of the employees will leave the group through voluntary severance packages and early retirement. Tongaat will minimise forced retrenchments, he said.
Speaking at the results presentation, chair Louis von Zeuner said the company will handle the reduction of the number of employees in SA,
Zimbabwe and Mozambique “in a responsible way. We understand where the country is at the moment.”
Tongaat said in a statement it has started with the sale of noncore assets, “with some projects well advanced”.
On November 19, the group announced the disposal of its sugar packaging and distribution business, Tongaat Hulett (Namibia), for N$220m (R220m). Tongaat owns 51% of the company and its share of the proceeds will be used to reduce debt levels.
Commenting on the possible sale of assets, Hudson said: “Literally nothing is off the table.”
Tongaat’s revenue was R17bn for the year to March 31 2019, slightly lower than R17.5bn in 2018, while operating profit increased from the previous R142m to R1.2bn.
The headline loss for the year was 823c per share, compared with 861c per share in 2018.