Tongaat gets rush from profit news
Sugar producer is now more than two-thirds of the way to achieving its SA debt-reduction target of R8.1bn
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 more than two-thirds of the way to achieving its SA debtreduction target.
Embattled sugar producer Tongaat Hulett’s shares 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 debtreduction target.
The group has battled with a corporate accounting scandal and a debt mountain that has forced it to sell assets, but said on Wednesday that it had 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 endSeptember, 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. It achieved an operating profit swing of R500m.
The group’s share surged 22.14% in afternoon trade on Wednesday, before ending the day 17.32% higher at R9.01.
Tongaat was once one of the country ’ s most recognisable blue-chip stocks, but an accounting scandal in 2019 left it 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.
STRONGER SALES
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 businesses that have since been disposed of, including the sale of its starch and glucose unit to Barloworld. The proceeds of the transaction, which was almost derailed by the Covid-19 pandemic, were received in October.
In the group’s SA sugar business, which accounted for more than a third of revenue to end-March, improvements in production and productivity were supported by notably stronger local sales, while exports benefited from the weaker exchange rate and improved pricing, particularly in refined sugar markets.
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.